Merger control

Merger control (합병에 대한 규제/合倂規制) refers to the government regulation of mergers on account of the Competition law.

The relevant legislation consists principally of the Monopoly Regulation and Fair Trade Act (MRFTA 독점규제 및 공정거래에 관한 법률/公正去來法), which was first enacted in 1980 and has undergone 18 amendments as of June 2012. Additional legal authority is found in the Enforcement Decree promulgated pursuant to the MRFTA, as well as the guidelines and standards issued pursuant thereto. Enforcement of the MRFTA rests with the Korea Fair Trade Commission (KFTC), an administrative body established under the jurisdiction of the prime minister that, as part of its work, sets standards and issues numerous notices and guidelines regarding its interpretation and implementation of the MRFTA.

Mergers to be regulated
Specifically, the following transactions are listed as activities that (subject to the jurisdictional threshold set forth below) must be reported to the KFTC pursuant to article 12 of the MRFTA: (except for an interlocking directorate between affiliate companies).
 * acquisition of 20 percent (15 percent in the case of domestic listed companies) or more of the shares of another company;
 * acquisition of additional shares by the shareholder who already owns the shares of a company in the ratio set forth above to become the largest shareholder;
 * participation in the establishment of a new joint venture company as the largest shareholder;
 * acquisition of all or a principal portion of the business or fixed assets of another company;
 * merger with another company; and
 * interlocking directorate, that is, assumption by an officer or an employee of a position as an officer of another company, where such person maintains his or her position in the first company

Meaning of 'Control'
Control, in itself, is not one of the factors determining whether a particular business combination is subject to the reporting obligation. There are cases where a business combination may still be subject to the reporting obligations even if the acquiring party cannot control the target company after the business combination, as long as the acquiring party acquires 20 per cent (15 per cent when the target company is a domestic listed company) or more of shares of the target company. Thus, minority and other interests less than control may be caught where such a transaction meets the filing thresholds.

The concept of control is important when the KFTC reviews a business combination for any anti-competitive effect. That is, if the business combination does not give rise to the acquiring party’s control of the target company, such a business combination is generally presumed to have no anti-competitive effect by the KFTC.

In case of stock acquisition and participation in the establishment of a new company, ownership ratio of 50 per cent or more will be regarded as control. In addition, even though the acquiring party’s ownership ratio in the target company is below 50 per cent, the acquiring party will be regarded as having control over the target company if the acquiring party may wield substantial influence on the general management of the target company considering various factors including degree of diversion in shares, relationship among shareholders and transactional relationship between the acquiring party and the target company. In case of an interlocking directorate, control is recognised if: the number of interlocking directors is onethird or more of total directors of the target company; or the interlocking directors maintain positions such as representative director who may wield substantial influence on the general management of the target company. Meanwhile, control is always recognised in cases of merger and business transfer.

In addition, the KFTC's newly-revised Merger Review Guidelines – which took effect from 28 December 2011 – and introduced a concept of ‘joint control’ in determining whether control is constituted. Thus, even though the acquiring party cannot exercise sole control over the target company, if it has the ability to influence major decisions of the target company, by virtue of appointment, veto or other rights, or it has access to important information of the target company for such purposes, the acquiring party is deemed to have control over the target company.

Jurisdictional thresholds
Starting from 1 July 2008, the scenarios set forth above that trigger a reporting requirement to the KFTC are caught within the scope of the MRFTA where one of the parties to the business combination (including worldwide affiliate companies both before and after the business combination) has total assets or annual turnover in the amount of 200 billion won (2 trillion won in case of interlocking directorate) or more and the other in the amount of 20 billion won or more. There is no reporting requirement if any of the parties involved, together with its affiliates, has total assets and annual turnover less than 20 billion won.

Filing requirement
Filing with the KFTC is a mandatory requirement as long as the parties meet the above-mentioned requirements. Notification may be pre-closing or post-closing, depending on the type of business combination and amount of respective parties’ total assets or turnover. As explained in question 9, the parties can opt to make a voluntary request for a review of the transaction even before a triggering event takes place.

However, there are some exceptions to the filing requirements according to the MRFTA. For example, if the company owns the stocks of the investing company under the Indirect Investment Asset Management Act, the company shall not be subject to notifying the combination of enterprises. The obligation to notify shall not apply if the head of a central administrative agency has consulted in advance with the KFTC regarding the combination of enterprises under the relevant Acts.

The acquiring company (or the company whose officers take up a position in the target company) must report to the KFTC. No filing fees are required in Korea.

Taking effect from 22 June 2012, all notifications (both pre-merger and post-merger notifications) are subject to a 30-day waiting period after the filing date. The waiting period may either be shortened or extended by up to 120 days where the KFTC deems it necessary. During the waiting period, consummating activities such as the transfer of stocks, registration of ownership and full payment of the purchase price are prohibited.