Corporate raiders

Corporate raiders (기업사냥꾼/企業猎手) in hostile mergers and acquisitions (M&A) are usually called as hunters of M&A target company.

In business, a corporate raid refers to buying a large stake in a corporation and then using shareholder voting rights to require the company to undertake novel measures designed to increase the share value, generally in opposition to the desires and practices of the corporation's current management. The measures might include replacing top executives, downsizing operations, or liquidating the company.

Corporate raids were particularly common for the purpose of corporate or industrial restructuring in the 1970s and 1980s in the United States. Corporate raids or hostile takeovers were fueled by LBO financing employing junk bond issuance.

By the end of the 1980s when Wall Street investors witnessed the rise and fall of Junk Bond King Michael Milken, management of many large publicly traded corporations had adopted legal countermeasures designed to thwart potential hostile takeovers and corporate raids, including poison pills, golden parachutes, and increases in debt levels on the company's balance sheet.

Key words
M&A, corporate raider, hostile take-over, management defense, embezzlement

Situations in Korea
한국거래소와 조선비즈가 공동으로 추산한 바에 따르면 KOSDAQ에서는 기업사냥꾼이 적은 돈으로 기업을 인수한 뒤 내부 자금을 횡령하거나 주가를 조작하는 사례가 많았다. 그밖에 오너가 외부세력과 결탁하여 부정하게 주가를 조작한 것으로 드러나 상장 폐지된 것까지 합치면 지난 10년간 325개사에 이르렀다. 이들로 인한 개인투자자들의 피해액이 최대 45조1000억원에 달하는 것으로 나타났다. 피해액은 상장폐지되기 직전 주가 조작으로 찍었던 최고점, 혹은 기업 사냥꾼의 힘이 미치기 전 정상적이었을 때의 주가를 기준으로 산출했다.

외부 자금을 끌어와 상장사를 인수한 뒤 내부 자금을 빼내는 기업 사냥꾼들의 무자본 M&A 사례를 보면, 위조지폐 감별기 생산업체 SBM Co. at the end of 2012 조직폭력배 일당에 피인수됐다. 이들은 사채업자에게서 M&A 자금을 빌린 뒤 에스비엠의 내부 자금을 빼돌려 빌린 돈을 갚았다. 이후로도 추가로 내부 자금을 횡령한 것이 적발되며 상장폐지됐다.

기업 사냥꾼, 주가 조작단에 공통적으로 나타나는 현상은 기업이 상장폐지가 임박해질 때쯤 주식을 모두 처분한다는 점이다. 그만큼 개인투자자들의 손실은 더 커질 수밖에 없다. 퇴출된 기업 325개사의 최대주주 지분율(마지막 사업보고서 제출 시점 기준)은 보통 3~5% 수준인 것으로 나타났다. 90%가 넘는 지분을 개인투자자가 갖고 있었던 것이다.

기업 사냥꾼이 노린 상장사들을 살펴보면 몇 가지 특징을 가지고 있다. 최대주주나 대표이사가 자주 변경되거나 계속 적자를 보면서 재무구조가 악화한 기업을 들 수 있다. 유상증자, 전환사채, 신주인수권부 사채 등 무리한 자금조달을 하는 것도 이상징후이다. 또 최대주주 측이 주식을 담보로 대규모 대출을 받거나, 공시 번복·의무 정보 제공 누락 등 때문에 불성실 공시 법인으로 자주 등장하는 기업이 해당한다. Ordinary investors are required to be cautious of this kind of KOSDAQ-listed companies.

How to defense Corporate raiders
There are several tactics or techniques, which can be used to deter a hostile takeover by a corporate raider. Among others, the following tactics are usually employed or discussed for use by the incumbent management in Korea.

A white knight, or "friendly investor", may be a corporation or an individual that acquires a corporation(s) at a fair consideration during a period in which the corporation acquired (target corporation) is facing a hostile acquisition from another potential acquirer (black knight). White knights are preferred by the board of directors (when directors are acting in good faith with regards to the interest of the corporation and shareholders) and/or management as in most cases as they do not replace the current board and/or management with a new board. Whereas in most cases, a black knight will seek to replace the current board of directors and/or management with its new board reflective of its net interest in the corporation's equity.
 * White knight (백기사/白騎士):

A golden parachute is an agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. Most definitions specify the employment termination is as a result of a merger or takeover, also known as "Change-in-control benefits". But more recently the term has been used to describe perceived excessive CEO (and other executives) severance packages unrelated to change in ownership (also known as a Golden handshake). The benefits may include severance pay, cash bonuses, stock options, or other benefits.
 * Golden parachute (황금낙하산/黃金落下傘):

A shareholder rights plan, known as a "poison pill", is a type of defensive tactic used by a corporation's board of directors against a takeover. In the U.S. M&A market, shareholder rights plans were devised in the early 1980s as a way for directors to prevent takeover bidders from negotiating a price for sale of shares directly with shareholders, and instead forcing the bidder to negotiate with the board. Shareholder rights plans are unlawful without shareholder approval in many jurisdictions such as the United Kingdom, frowned upon in others such as throughout the European Union, and lawful if used "proportionately" in others, including Delaware in the United States.
 * Poison pill (독약조항/毒藥條項):

The typical shareholder rights plan involves a scheme whereby shareholders will have the right to buy more shares at a discount if one shareholder buys a certain percentage of the company's shares. The plan could be triggered, for instance, when any one shareholder buys 20% of the company's shares, at which point every shareholder (except the one who possesses 20%) will have the right to buy a new issue of shares at a discount. The plan can be issued by the board as an "option" or a "warrant" attached to existing shares, and only be revoked at the discretion of the board of directors. A shareholder who can reach a 20% threshold will potentially be a takeover bidder. If every other shareholder will be able to buy more shares at a discount, such purchases will dilute the bidder's interest, and the cost of the bid will rise substantially. Knowing that such a plan could be called on, the bidder could be disinclined to the takeover of the corporation without the board's approval, and will first negotiate with the board so that the plan is revoked.


 * (차등의결권제/差等議決權制)

Prospects
Of late corporate raiders have turned to being "activist shareholders", purchasing equity stakes in a corporation to influence its board of directors to put public pressure on its management.

Some of them happen to be foreign investment funds like Sovereign Asset Management. in August 2013, the Ministry of Justice made public an amendment to the Commercial Act, which for the purpose to protect the voting rights of minor shareholders, limits the voting rights of the biggest shareholders of big corporations in electing audit committee members, and makes the cumulative voting and executive officers mandatory. If the amendment is passed by the National Assembly, such business groups with holding company systems as SK, LG, GS, Doosan, etc. could be exposed to the probable corporate raid by foreign investors. Contrary to the government expectations, ironically, business groups which are dependent on circular investment or distributed ownership would easily defense their management.

Accordingly, the business circle demands that the proposed amendment to the Commercial Act as explained above should be optional. Otherwise, it should not be implemented until effective M&A defense measures are adopted by law. Business leaders and lawmakers from the ruling party are crying "wolf like Sovereign" which threatened the management of the SK Group by securing 14.99% of total shares of SK, the main company of the group, in 2003. The fund fled Korea after obtaining one trillion one of capital gains by selling its SK shares to SK affiliates.