The National Assembly has passed a bill amending the Capital Markets Act to determine the merger value of listed companies based on 'fair value' rather than market price at a specific point in time. This change aims to prevent controlling shareholders from intentionally lowering stock prices to create favorable merger conditions, thereby enhancing protection for minority shareholders.
According to the Financial Services Commission on August 20, the amendment to the Capital Markets and Financial Investment Act passed the National Assembly after being reviewed by the Political Affairs Committee on May 14 and the Legislation and Judiciary Committee on July 29.
Under the current law, when a listed company merges with an affiliate, the merger value is primarily based on market price. This is calculated using the arithmetic average of closing prices from the previous day of either the contract date or the board resolution date, averaged over the last month, week, or day, with a permissible discount or premium of up to 10%.
The issue with relying solely on market price is that controlling shareholders may intentionally choose a low stock price point or have an incentive to suppress stock prices ahead of a merger.
The amendment stipulates that for mergers, spin-offs, significant asset transfers, and comprehensive stock exchanges, fair value will be determined by considering market price, asset value, and income value comprehensively.
Asset value will be calculated by dividing net assets by the total number of issued shares, while income value can be assessed using discounted cash flow (DCF) or dividend discount models (DDM). This approach aims to reflect not just the stock price at a specific point in time but the intrinsic value of the company.
The method for calculating the buyout price for shareholders opposing mergers will also change. Currently, if no agreement is reached between shareholders and the corporation, the market price is applied, followed by a court ruling. The amendment will require consideration of market price, asset value, and income value.
To enhance procedural fairness, the board of directors will be required to prepare and disclose an opinion statement regarding the purpose and expected effects of the merger, as well as the appropriateness of the value. This provision elevates the current regulatory content to a legal requirement.
Additionally, companies will need to obtain evaluations from an objective third party regarding the fairness of the merger value or transaction terms and disclose the results. In cases of mergers between affiliates, they must also disclose any related party transactions, such as debt guarantees, collateral provisions, and concurrent positions held by executives.
The Financial Services Commission stated, “With this amendment, minority shareholders will be able to assess the validity of mergers by reviewing public documents, and it can be utilized for rights remedies if necessary, in conjunction with the shareholder loyalty obligations under the amended Commercial Act.”
The amendment is expected to take effect three months after its promulgation, following government transmission and approval by the Cabinet. The Financial Services Commission plans to promptly revise subordinate regulations in line with the law's implementation.
* This article has been translated by AI.
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