t m & a r the mergers - kim & chang · this article was first published in the mergers...
TRANSCRIPT
The Mergers & AcquisiTions review
fourth edition
reproduced with permission from Law Business research Ltd.This article was first published in The Mergers & Acquisitions Review, 4th Edition
(published in September 2010 – editor Simon Robinson).
for further information please [email protected]
Th
e Mer
ger
s & A
cq
uisitio
ns R
eview
Edito
rSim
on
Ro
binso
n
Law Business Research
The Mergers & Acquisitions
Review
Fourth Edition
Editor
Simon Robinson
The Mergers & AcquisiTions review
fourth edition
reproduced with permission from Law Business research Ltd.This article was first published in The Mergers & Acquisitions Review, 4th Edition
(published in September 2010 – editor Simon Robinson).
for further information please [email protected]
Contents
2
The Mergers & Acquisitions
Review
fourth edition
editor
siMon robinson
LAw business reseArch LTd
Contents
�
PubliShER Gideon Roberton
buSinESS dEvEloPMEnT MAnAGER Adam Sargent
MARkETinG ASSiSTAnT hannah thwaites
EdiToRiAl ASSiSTAnT nina nowak
PRoducTion MAnAGER Adam Myers
production editor Joanne Morley
SubEdiToR charlotte Stretch
editor-in-chief callum campbell
MAnAGinG diREcToR Richard davey
Published in the united kingdom by law business Research ltd, london
87 lancaster Road, london, W11 1QQ, uk© 2010 law business Research ltd
© copyright in individual chapters vests with the contributors no photocopying: copyright licences do not apply.
The information provided in this publication is general and may not apply in a specific situation. legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or
omissions contained herein. Although the information provided is accurate as of July 2010, be advised that this is a developing area.
Enquiries concerning reproduction should be sent to law business Research, at the address above. Enquiries concerning editorial content should be directed
to the Publisher – [email protected]
iSbn 978-1-907606-03-8
Printed in Great britain by Encompass Print Solutions, derbyshire
Tel: +44 870 897 3239
i
AcknoWlEdGEMEnTS
The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:
firm namesAdvokATfiRMAET hJoRT dA
ÆLeX
AllEnS ARThuR RobinSon
AMARchAnd & MAnGAldAS & SuRESh A ShRoff & co
AndERSon MoRi & ToMoTSune
ARiAS & Muñoz
ARiAS, fábREGA & fábREGA
bATlinER WAnGER bATlinER ATToRnEyS AT lAW lTd
bERnoTAS & doMinAS GliMSTEdt
boWMAn GilfillAn
bREdin PRAt
bRiGARd & uRRuTiA AboGAdoS
cAMillERi PREzioSi
chARlES AdAMS RiTchiE & duckWoRTh
coulSon hARnEy
cRAvATh, SWAinE & MooRE llp
diTTMAR & indREniuS
dRyllERAkiS & ASSociATES
EliG ATToRnEyS AT lAW
euBeLiuS
f cASTElo bRAnco & ASSociAdoS
fonTES & TARSo RibEiRo AdvoGAdoS
ii
GlATzová & co., v.o.s.
GliMSTEdT & PARTnERS
GliMSTEdT STRAuS & PARTnERS
GoRRiSSEn fEdERSPiEL
hEnGElER MuEllEr
khAn & ASSociATES
kiM & chAng
lAWcASTlES
MAkES & PARTnERS lAW fiRM
MAnnhEiMER SWARTlinG AdvokATbyRå
MARvAl, o’fARREll & MAiRAL
MAThESon oRMSby PREnTice
MiRo SEnicA And ATToRnEyS, d.o.o.
Mondini RuSconi STudio lEGAle
MoRAvcEvic voJnovic zdRAvkovic oAd in cooperATion wiTh SchönhERr
MoREno bAldiviESo ESTudio dE AboGAdoS
nAGy éS TRócSányi ÜGyvédi iRodA
nAuTAduTilh
noblE & SchEidEckEr
oSlER, hoSkin & hARcouRT llp
PAyET, REy, cAuvi AboGAdoS
PEnkov, MARkov & PARTnERS
QuEvEdo & Ponce
ruzickA cSEkES s.r.o.
S hoRoWiTz & co
SAnTAMARinA y STETA, Sc
Acknowledgements
iii
SchEllEnbERG WiTTMEr
SchönhERR REchTSAnWälTE GMbh
SlAuGhTER And MAy
STAMfoRd lAW coRPoRATion
SullivAn & cRoMWEll llp
ToRRES, PlAz & ARAuJo
uRíA MEnéndEz
vASil kiSil And PARTnERS
WinklER PARTnERS
younG conAWAy STARGATT & TAyloR, llp
Acknowledgements
Contents
iv
Editor’s Preface ...............................................................................................................xiSimon Robinson
Chapter 1 Eu coMPETiTion ovERviEW ................................................1Juan Rodriguez
Chapter 2 EuRoPEAn ovERviEW ..............................................................7Simon Robinson
Chapter 3 uS coMPETiTion ovERviEW .............................................. 24Antitrust Group of Sullivan & Cromwell LLP
Chapter 4 ARGEnTinA .................................................................................. �9Alejandro D Fiuza and Pablo Gayol
Chapter 5 AuSTRAliA ..................................................................................... 48Ewen Crouch and Eve Regnard
Chapter 6 AuSTRiA .......................................................................................... 62Christian Herbst
Chapter 7 bElGiuM ........................................................................................ 71Koen Geens and Marieke Wyckaert
Chapter 8 boliviA ........................................................................................... 78Luis F Moreno G
Chapter 9 bRAzil ............................................................................................. 86Marcus Fontes, Max Fontes and Paulo de Tarso Ribeiro
Chapter 10 bulGARiA ...................................................................................... 96Roman Stoyanov and Svetoslav Dimitrov
Chapter 11 cAnAdA ........................................................................................ 105Robert Yalden, Ward Sellers and Emmanuel Pressman
Chapter 12 cAyMAn iSlAndS .................................................................... 117Antony Duckworth and Alan de Saram
conTEnTS
Contents
v
Chapter 13 coloMbiA ................................................................................... 121Sergio Michelsen Jaramillo
Chapter 14 coSTA RicA ................................................................................. 1��Vicente Lines and Carmen de Maria Castro
Chapter 15 czech repuBLic ..................................................................... 140Vladimíra Glatzová and Markéta Budkovská
Chapter 16 dEnMARk .................................................................................... 150Henrik Thouber and Anders Ørjan Jensen
Chapter 17 EcuAdoR ..................................................................................... 159Alejandro Ponce Martínez
Chapter 18 ESToniA ....................................................................................... 164Ilmar Straus
Chapter 19 finlAnd ....................................................................................... 17�Jan Ollila, Anders Carlberg and Wilhelm Eklund
Chapter 20 fRAncE ......................................................................................... 182Didier Martin
Chapter 21 GERMAny .................................................................................... 198Christian Möller and Heinrich Knepper
Chapter 22 greece ......................................................................................... 209Cleomenis G Yannikas, Vassilis-Thomas G Karantounias and Sophia K Grigoriadou
Chapter 23 honG konG .............................................................................. 218George Goulding and Jason Webber
Chapter 24 hunGARy ..................................................................................... 228Péter Berethalmi and Tamás Pásztor
Chapter 25 indiA .............................................................................................. 2�6Cyril Shroff
Chapter 26 indonESiA ................................................................................. 247Yozua Makes
Chapter 27 iRElAnd ....................................................................................... 257Patrick Spicer
Contents
vi
Chapter 28 iSRAEl ............................................................................................ 267Clifford Davis and Keith Shaw
Chapter 29 iTAly .............................................................................................. 277Giovanni Stucchi and Luca Tiberi
Chapter 30 JAPAn .............................................................................................. 290Hiroki Kodate and Risa Fukuda
Chapter 31 kEnyA ........................................................................................... �01Richard Harney
Chapter 32 koREA ........................................................................................... �07Sang-Hyuk Park and Gene-Oh Kim
Chapter 33 lATviA ........................................................................................... �18Maris Butans
Chapter 34 liEchTEnSTEin ....................................................................... �25Martin Batliner and Brigitte Vogt
Chapter 35 liThuAniA .................................................................................. ��4Audrius Zvybas
Chapter 36 luxEMbouRG ........................................................................... �41Marie-Béatrice Noble
Chapter 37 MAlTA ............................................................................................ �5�Louis de Gabriele and Andrei Vella
Chapter 38 MExico ......................................................................................... �60Jorge León-Orantes B and José Ramón Ayala A
Chapter 39 MonTEnEGRo .......................................................................... �71Milan Dakic and Slaven Moravcevic
Chapter 40 nEThERlAndS ......................................................................... �80Willem Calkoen
Chapter 41 niGERiA ........................................................................................ 402L Fubara Anga
Chapter 42 noRWAy ........................................................................................ 407Elin Rostveit
Contents
vii
Chapter 43 PAkiSTAn ..................................................................................... 420Mansoor Hassan Khan
Chapter 44 PAnAMA ........................................................................................ 429Eduardo de Alba and Julianne Canavaggio
Chapter 45 peru ............................................................................................... 4�6José Antonio Payet, Carlos A Patrón and Susan Castillo
Chapter 46 PoRTuGAl ................................................................................... 447Rodrigo Almeida Dias
Chapter 47 SERbiA ........................................................................................... 456Petar Kojdic and Matija Vojnovic
Chapter 48 SinGAPoRE ................................................................................. 462Lee Suet-Fern and Elizabeth Kong Sau-Wai
Chapter 49 SlovAkiA ..................................................................................... 474Jana Pagácová
Chapter 50 SlovEniA ..................................................................................... 486Melita Trop and Uroš Podobnik
Chapter 51 SouTh AfRicA .......................................................................... 496Ezra Davids and Ashleigh Hale
Chapter 52 SPAin .............................................................................................. 505Christian Hoedl and Javier Ruiz-Cámara
Chapter 53 SWEdEn ........................................................................................ 515Biörn Riese, Eva Hägg and Cecilia Björkwall
Chapter 54 SWiTzERlAnd ........................................................................... 524Lorenzo Olgiati, Martin Weber and Jean Jacques Ah Choon
Chapter 55 TAiWAn ......................................................................................... 5�8Steven J Hanley
Chapter 56 TAnzAniA ................................................................................... 548Ngassa Dindi
Chapter 57 TuRkEy ......................................................................................... 560Tunç Lokmanhekim and Berna Asık Zibel
Contents
viii
Chapter 58 ukRAinE ...................................................................................... 567Denis Lysenko and Anna Babych
Chapter 59 uniTEd kinGdoM ................................................................. 579Simon Robinson
Chapter 60 uniTEd STATES ........................................................................ 599Richard Hall and Mark Greene
Chapter 61 uniTEd STATES: deLAwAre .................................................... 616Rolin P Bissell and Elena C Norman
Chapter 62 vEnEzuElA ............................................................................... 629Guillermo de la Rosa, Juan D Alfonzo, Pedro Uriola, Nelson Borjas and Ana C González
Appendix 1 AbouT ThE AuThoRS ........................................................... 641
Appendix 2 conTRibuTinG lAW fiRMS’ conTAcT dETAilS .... 679
xi
editor’s preface
In response to the financial crisis, the past year has been spent cutting costs and restoring balance sheets while governments have set about overhauling the regulatory landscape. Whether as a result of this approach or in spite of it, we have seen the first signs of a recovery in the second half of 2009. During the financial meltdown, many strong businesses focused on assessing their strategy and restructuring. As the signs of recovery began to emerge, such businesses tentatively started to re-engage in M&A transactions as a means of achieving growth.
Currently, buyers are conscious of scrutiny from shareholders with regards to how much is being paid for assets and whether the deals that are going ahead represent value for money (particularly in light of Warren Buffett’s publicly voiced concerns during the course of Kraft’s bid for Cadbury and shareholder reaction to the proposed acquisition of part of AIG by Prudential). Consequently, most potential buyers are treading carefully. On the other hand, there were also a number of quick deals in 2009 where a speedy resolution was necessary to allow distressed sellers to obtain cash promptly but the number of these should decrease throughout 2010 if we continue through to recovery.
Many are still cautious about the outlook for M&A activity for the remainder of 2010 and beyond. A rise in M&A activity is hugely dependent on the willingness of banks to increase lending. Access to credit plays a vital role in supporting the economy by helping businesses to create jobs and growth, both of which are necessary if we are to find our way out of recession and towards recovery. In the short term, M&A activity will depend heavily on boardroom confidence and such confidence will only be achieved if boards perceive that the few new M&A deals around have proven profitable for shareholders. Such confidence and optimism is slow to build; therefore,
Editor’s Preface
xii
while pockets of activity suggest that the worst of the financial crisis is behind us, the signs of recovery are tentative with buyers urging caution. The journey to recovery will be slow and difficult, but as lending increases and confidence rises, economists expect the sluggish growth of 2010 to develop into greater stability into 2011. That said, the recent problems of the euro, European government finances and the European banking sector could yet bring a renewed lapse into recession or worse. Only time will tell which progression turns out to be correct.
I wish again to thank all the contributors for their continued support in producing this book – one would hope that in this uncertain time the following chapters should at least provide some food for thought.
Simon RobinsonSlaughter and MayLondonJuly 2010
307
Chapter 32
KoreaSang-Hyuk Park and Gene-Oh Kim*
Kim & Chang
I OVERVIEW OF RECENT M&A ACTIVITY
In 2008, the Asia-Pacific region experienced a substantial drop in M&A activities mainly because of the global credit crisis. In 2009, there were signs of recovery in M&A activities in the region. Market data indicates that fourth quarter volume in M&A activities in the region was up by 25 per cent as compared to the third quarter, and up by 60 per cent as compared to the fourth quarter of 2008.� Moreover, compared to the rest of the world, which saw a 27 per cent decline in M&A activities, the Asia-Pacific region held fast, finishing the year with a gain of 6 per cent in value, and a drop of only 5 per cent in volume.�
In the Korean market, total announced deal volume for 2009 amounted to $47.9 billion, which was down by 2.74 per cent as compared to 2008.3 As the global and Korean economies recover from the recent recession, the Korean M&A market is generally expected to become more active in 2010.
Significant deals that were announced in 2009 and in the first quarter of 2010 include the following transactions:a in October 2009, the sale of LG Dacom Corp and LG Powercom Corp to LG
Telecom Ltd, with a transaction value of $2.7 billion;b in October 2009, the sale of Harvest Energy Trust to Korea National Oil Corp,
with a transaction value of $3.9 billion;c in November 2009, the sale of 8 Canada Square by HSBC Holdings plc to
National Pension Service of Korea, with a transaction value of $1.2 billion;
* Sang-Hyuk Park and Gene-Oh Kim are partners at Kim & Chang.1 Bloomberg, ‘Asia Legal Advisory Mergers & Acquisitions Rankings 2009’, 1 January 2010.2 Mergermarket, ‘M&A League Tables of Legal Advisers to Asia-Pacific M&A Year End 2009’,
7 January 20103 Bloomberg, ‘Korea M&A League Table’, 1 January 2010.
Korea
308
d in December 2009, the sale of Daewoo Engineering & Construction to Korea Development Bank, with a transaction value of $2.5 billion; and
e in February 2010, the sale of Department and Discount Store by GS Holdings to Lotte Shopping Co Ltd, with a transaction value of $1.1 billion.
II GENERAL INTRODUCTION TO THE LEGAL FRAMEWORK FOR M&A
The Korean Commercial Code (‘the KCC’) provides for the general business and corporate laws governing Korean companies, including laws relating to the incorporation of a company, the acquisition of shares, business transfers, mergers, spin-offs, corporate splits and other transaction structures. If the acquisition involves shares of a company listed on the Securities Market Division (generally referred to as ‘the KOSPI market’) or the KOSDAQ Market Division of the Korea Exchange, the Law on Capital Markets and Financial Investment Industries (‘the Capital Markets Law’ or ‘FSCMA’) and other related rules and regulations will apply. M&A transactions are also subject to the business combination reporting requirement under the Monopoly Regulation and Fair Trade Law, which is enforced by the Korea Fair Trade Commission.
Foreign investments in Korean companies are also regulated and subject to certain reporting requirements under the Foreign Investment Promotion Law (governing foreign direct investments) and the Foreign Exchange Transaction Law (governing portfolio investments). Acquisitions in particular industries such as finance, telecommunications and defence may also be subject to certain industry-specific laws and regulations. For example, an acquisition of a bank would be subject to approval by the Financial Services Commission under the Banking Law. Also, acquisitions of companies under corporate restructuring proceedings will be subject to the Corporate Restructuring Act and supervised by a court and a court-appointed receiver.
As noted in Section III infra, there are pending proposals that are anticipated to be reviewed in the next session of the National Assembly for amendments to both the KCC and the FSCMA.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
The primary development that will impact the conduct of mergers and acquisitions in the near future is a proposed amendment to the KCC as described infra.
i Background
In recent years, the Ministry of Justice has proposed several amendments to the KCC. The first set of revisions were proposed in 2007 (which are still under review by the National Assembly) and the second set of revisions were proposed following a separate legislative effort to replace the existing Securities and Exchange Law with the provisions of the FSCMA (which took effect in February 2009).
Korea
309
ii Key features of the revisions relating to M&A
The following are the key features in the first set of revisions (‘the Revisions’) that could affect M&A activities in Korea.
Diversification of forms of merger consideration
Under Article 523, Item 4 and Article 523-2 of the Revisions, in the case of a merger, the shareholders of the merging company may receive shares of the surviving entity or other monetary consideration or the shares in the parent company of the surviving entity, thereby allowing for greater flexibility in the choice of consideration for a merger. Under the current KCC, the only recognised form of consideration is shares of the surviving entity itself. With the increased flexibility in terms of consideration, more diverse forms of merger structures (including triangular mergers) are expected to be used in the future under the Revisions.
In addition, the Revisions would also revise the applicable thresholds for a ‘small-scale’ merger, which is a structure that does not require approval by the shareholders of the surviving entity. Under Article 527-3, Section 1 of the Revisions, if the shares issued in connection with the merger amount to no more than 10 per cent (previously 5 per cent) of the issued shares of the surviving entity, and the amount of merger consideration (if any) amounts to no more than 5 per cent (previously 2 per cent) of net asset value of the surviving entity, then only approval of the board of directors of the surviving entity will be required (unless provided otherwise in the applicable articles of incorporation). By enlarging the scope of the ‘small-scale’ merger exception, the intent is to save both time and effort by doing away with the shareholders’ meeting requirement for mergers that are deemed not to be a significant transaction for the surviving entity.
Exception from complex in-kind contribution procedures
Under the current KCC, in order to make an in-kind contribution, a relatively complex set of procedures must be followed, including certification of the value of the contributed assets by the court. Under Article 299, Section 2 of the Revisions, where (1) the amount of contributed assets is less than 20 per cent of the total capital and less than an absolute value to be provided in the Presidential Decree promulgated under the Revisions; (2) the contributed assets consist of listed securities for which a market price is available and for which the market value does not exceed a certain limit determined in accordance with the Presidential Decree; or (3) other exceptions based on the above exceptions as determined in the Presidential Decree, then the certification procedures may not apply.
Recognition of ‘squeeze-out’ procedure to obligate sale of shares by minority shareholders
In order to avoid unnecessary expenses in conducting shareholders’ meeting as well as to provide a means by which minority shareholders can redeem their shares, Article 360-24 through 360-26 of the Revisions would provide for ‘squeeze-out’ provisions that (1) would allow the major shareholder (which has at least 95 per cent of the outstanding shares) to obligate the minority shareholders to sell their shares and (ii) would provide a right to minority shareholders to cause the major shareholder to purchase their shares. In each case, the applicable price would be determined in the first instance by negotiation between the parties, and, in the absence of such agreement, by the courts.
Korea
3�0
On 2 July 2009, the government reportedly decided to allow anti-takeover measures such as poison pills so that managers can concentrate on withstanding the economic downturn rather than defending against hostile takeovers. The scope and timing of the enactment of such regulation have not yet been determined.
Through the foregoing types of changes, the Ministry of Justice intends to allow for greater flexibility in structuring M&A transactions.
IV FOREIGN INVOLVEMENT IN M&A TRANSACTIONS
The following is a general review of trends in foreign direct investment (‘FDI’) in Korea, comparing the first quarter of 2010 to the first quarter of 2009.4
i General summary
During the first quarter of 2010, FDI in Korea decreased by 8.2 per cent in comparison with the first quarter of 2009 ($1.6 billion in 2009 versus $1.5 billion in 2010). FDI, however, recovered dramatically starting in mid-February, from $150 million in January, to $490 million in February, and to $900 million in March.
Major investments in the first quarter include Dar Al Salam of Saudi Arabia investing $150 million in tourism projects in the Saemangeum reclaimed land in South Chungcheong and SD of Ireland spending $200 million on pharmaceutical production.
ii Industry breakdown
FDI in the service industries totalled $822 million during the first quarter of 2010, representing an increase of 8.6 per cent from the same period last year. Within the service industry, investments in the real estate sector increased by a magnitude of 290.9 per cent, the food sector by 299.7 per cent, and the transportation sector by 288.5 per cent during the first quarter of 2010 compared to the same period last year.
FDI into Korea’s manufacturing industry during the first quarter of 2010 totalled $654 million, a decrease of 28.4 per cent from the same period a year ago. Within the manufacturing industry, investments in the electronics and mineral sectors decreased by 84.6 per cent and 99 per cent respectively, whereas investments in the medicine and metal sectors increased by 282,941.3 per cent and 733 per cent respectively in comparison to the same period in 2009.
iii Investors
During the first quarter of 2010, FDI in Korea by investors from Japan and US decreased by 60.4 per cent and 89.9 per cent respectively, compared to the same period a year ago. FDI from US investors into the Korean manufacturing industry during the first quarter of 2010 amounted to $9 million, a decrease of 88.7 per cent from the same period in
4 The data cited in Section IV are based on figures cited in a press release of the Ministry of Knowledge & Economy, dated 7 April 2010, entitled ‘Trends in FDI for First Quarter of 2010’.
Korea
3��
the previous year, while investment into the service industry experienced a 89.1 per cent decrease, totalling $31 million. FDI from Japanese investors during the first quarter of 2010 amounted to $164 million in the manufacturing industry, showing a decrease of 73.8 per cent, and reached $97 million in the service industry, representing an increase of 198.5 per cent in comparison to the same period last year.
On the other hand, the European Union, the biggest foreign direct investor in Korea, spent $842 million, an increase of 57.4 per cent from last year. Specifically, European investment into the manufacturing sector increased by 106 per cent, amounting to a total of $396 million with a focus on pharmaceutical and renewable energy industries.
Middle-Eastern investment jumped 877.8 per cent to $154 million, while China’s investment grew 401.6 per cent to $159 million. The increased amount from these two areas mainly went to tourism developments and transportation industries.
iv Greenfield versus M&A investments
During the first quarter of 2010, foreign investors provided $1 billion in the form of greenfield investments (investment in new assets) in Korea, a decrease of 32.3 per cent from the same period in 2009. More specifically, there was a decrease of 14.5 per cent in greenfield investments in the service industry, amounting to $569 million, as well as a decrease of 54.2 per cent in the manufacturing industry, bringing the amount to $375 million (despite a large increase in the metal industry by 710.5 per cent).
In comparison to foreign greenfield investments, $532 million of foreign M&A investments (investment in existing assets) were made into Korea during the first quarter of 2010, representing an increase of 183.9 per cent from the same period from the previous year. In particular, the manufacturing industry saw an increase of 192.2 per cent, amounting to $279 million, while the service industry saw an increase of 175.4 per cent, bringing the amount to $254 million.
v New enterprise investments versus current enterprise investments
FDI in Korea may be categorised into that undertaken with respect to new enterprises and that undertaken with respect to existing enterprises (established by prior FDI).
FDI in new enterprises in Korea during the first quarter of 2010 amounted to $370 million, a decrease of 25.4 per cent from the same period a year ago. Within FDI in new enterprises during the same period, investments in the manufacturing industry decreased by 31.8 per cent, and investments in the service industry increased by 60.3 per cent, bringing the total amounts to $346 million and $679 million, respectively.
FDI in Korea channelled to those enterprises previously established by FDI increased by 9.5 per cent from the same period of the previous year, totalling $1 billion. Within such FDI, investments in the manufacturing industry during the first quarter of 2010 decreased by 31.8 per cent, and investments in the service industry during the said period increased by 60.3 per cent from the same period of the previous year.
vi Future outlook
Due to the shrinking FDI around the world, a slow economic recovery is anticipated. The rise of the Korean currency is expected to be a significant factor for Korea’s
Korea
3��
economy. It is anticipated that the economic recovery on an international scale will take a considerable amount of time.
V SIGNIFICANT TRANSACTIONS, KEY TRENDS AND HOT INDUSTRIES
One of the key aspects of this year’s transactions was that several of the sales went through an open bidding process, such as the first two transactions described infra. While competitive bidding was mainly restricted to sales by the government, financial institutions and private equity funds, 2009 saw an increase in competitive bidding within the corporate area as well.
i Sale of department and discount stores by GS Holdings to Lotte Shopping Co Ltd
In May 2010, GS Holdings sold its department store and hypermarket business to Lotte Shopping Co. Ltd (‘Lotte’), the largest department store operator in Korea, for approximately 1.34 trillion won. The sale, which was effected through a complex business transfer of three department stores and 14 hypermarket stores, marked one of the largest business transfer deals completed in Korea. Upon completion of this transaction, Lotte was able to further consolidate its position as the leader in the department store market area, and was able to gain a significant market share in the hypermarket business area.
ii Sale of Prudential Investment & Securities Co. Ltd by Prudential to Hanwha Securities Co Ltd
In June 2010, 100 per cent of the shares in Prudential Investment & Securities Co Ltd were sold to Hanwha Securities Co Ltd for approximately 340 billion won. The transaction made Hanwha one of the top five securities companies in Korea.
iii Merger of LG Telecom, LG Dacom and LG Powercom
In order to strengthen competition in this era of wired or wireless convergence, LG Telecom Co, Ltd decided to merge together LG Dacom and LG Powercom to widen its business portfolio by covering both wired and wireless services. In addition to the Korea Fair Trade Commission (‘the KFTC’), which oversees anti-competitive matters, the telecommunications industry is strongly regulated by the Korea Communications Commission (‘the KCC’), from which a regulatory clearance was required in order to close the transaction. Following issuance of the KFTC’s opinion dated 3 December 2009, stating clearly that the merger does not result in a restraint on competition, the KCC approved the merger on 14 December 2009.
VI FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
i Recent trends of acquisition financing transactions
In 2009 and early 2010, there was an increase in acquisition financing activity. The total amount and number of acquisition financing transactions however was small compared to the total number of M&A transactions in general. This was because most of the
Korea
3�3
investors were large conglomerates or financial institutions that were able to procure necessary funds through corporate financing such as corporate bond issuance or equity financing.
ii Major issues in acquisition financing
The Amendment of the Enforcement Decree of FSCMA (effective as of 21 December 2009), which regulates the forms and management methods of investment vehicles, introduced new forms of investment vehicles. Of particular interest in the M&A regime is the special purpose acquisition company (‘SPAC’). SPAC, a newly introduced investment vehicle under the amendment, is a paper company that is established for the sole purpose of merging with or acquiring another company with the proceeds of the SPAC’s initial public offering. The amendment also permits the establishment of hedge funds by setting forth in detail the scope of qualified investors who may invest in hedge funds, borrowing limits, and debt guarantee limits. The amendment, however, is poised to allow for only a limited implementation of a hedge funds system as it requires each hedge fund to invest at least 50 per cent of its assets in companies targeted for restructuring.
In addition, historically, leveraged buyout (‘LBO’) transactions in Korea have raised liability issues for the transaction parties, particularly in connection with breaches of fiduciary duty of directors. Under Korean law, breaches of fiduciary duty may subject a director to both criminal and civil liabilities. The issue became complicated because previously, the Korean Supreme Court held a director of the target liable for breach of his fiduciary duty for directing the target to provide its assets as collateral in support of the purchaser’s acquisition loans. Although this issue is still developing in Korea, there have been a couple of meaningful court decisions recently which may provide more guidance in relation to structuring an LBO in Korea and considerations and procedures that need to be given or taken by the board in upholding its fiduciary duty. For instance, a recent Supreme Court decision held that the mere fact an LBO has occurred does not, in and of itself, give rise to criminal liability for breach of fiduciary duty, but rather, the courts should examine the specific actions taken by the directors during the LBO process, on a case by case basis, to determine whether there was, indeed, a breach of fiduciary duty. In the particular case, the Supreme Court found relevant directors not guilty of a breach of fiduciary duty with respect to a certain type of debt push-down structure.
VII EMPLOYMENT LAW
Under Korean labour and employment laws, if a company is deemed to have selectively purchased specific assets, it is not deemed to have assumed any liabilities in connection with employee claims against the transferor except pursuant to an express agreement executed between the parties. If a company is deemed to have acquired the business of another entity, it will be bound by the terms of the existing employment agreements and other commitments to the employees of the transferor by operation of law (unless the employees voluntarily agree otherwise). In this respect, the result on terms of employment relationships of a business transfer is similar to the result of a merger.
Whether a transaction will be viewed as a business transfer depends upon the totality of the circumstances. As a general principle, the term ‘business transfer’ means
Korea
314
the transfer to the purchaser of all assets, liabilities and employees of a business. For labour law purposes, however, a business transfer may be deemed to have occurred even without the transfer of all assets, liabilities and employees, if: (1) the key assets of the business are transferred, (2) the transferor ceases its business, (3) the transferee is thereafter engaged in the same business in which the transferor was engaged in prior to the transfer and (4) most or all employees are transferred as a result of the company’s decision to transfer such employees.
With respect to labour and employment-related issues, the trend in the courts has been to broaden the scope of the definition of a ‘business transfer’, beyond that used for tax and other purposes. Even where the transfer relates only to a single department or division, such transfer may be deemed to be a ‘partial business transfer.’ For labour law purposes, we note that a partial business transfer has virtually the same legal implications as an entire business transfer as far as the affected employees (and employee claims) are concerned.
VIII TAX LAW
i Major trends
In general, Korean tax authorities’ corporate tax proposals have indicated a trend towards increasing regulation. The tax authorities have proposed additional criteria for selecting companies subject to external audits, which will broaden the scope of companies that qualify for these audits. Those companies that previously benefited from the loosened standards for external audit the previous year may be required to comply with the external audit requirement again under the proposed amendment. The new tax law changes further support this view of increasing regulation on companies.
ii Legislative revisions and amendments
The following is a summary of the major recent revisions to the Corporate Tax Law.
Corporate income tax rate
A reduction in corporate income tax rate (including 10 per cent resident surtax) from 24.2 per cent to 22 per cent for those in the income bracket of more than 200 million won will be postponed for two years, while reduction in the tax rate (including 10 per cent resident surcharge) from 12.1 per cent to 11 per cent for those in the income bracket of less than or equal to 200 million won will occur as originally scheduled.
Withholding tax on interest on bonds
Under the new amendment, withholding obligation for interest on bonds paid to certain financial institutions is to be re-enacted, applying to interest accruing on or after 1 January 2010.
Reform of taxation for a merger
Under the revisions, in a tax-qualified merger, the merged company (i.e., the disappearing company) is not required to recognise the loss or gain from the transfer of assets, whereas
Korea
315
a tax-disqualified merger is treated as a taxable transaction in principle. The surviving company shall take carry-over basis for the assets transferred, and tax attributes of the merged company, including net operating loss (‘NOL’), and most of the temporary book-to-tax differences will generally carry over to the surviving company. Continuity of shareholder interest has been added to the requirements for a tax-qualified merger and the minimum percentage of stock consideration of the total consideration, if received, has been decreased from 95 per cent to 80 per cent. This amendment will take effect on or after 1 July 2010.
Taxation for a corporate division
In a tax-qualified horizontal split, under the new revision, a demerging company is not required to recognise the loss or gain from the transfer of assets, whereas in a tax-disqualified horizontal split, the transfer of assets is treated as a taxable transaction in principle, and the new company shall take carry-over basis for the assets transferred. The tax attributes of the demerging company, including NOL (only for a split involving the liquidation of the demerging company), and most of the temporary book-to-tax differences will generally carry over to the new company. Continuity of shareholder interest has been added to the requirements for a tax qualified split, and the minimum percentage of stock consideration of the total consideration for a split merger, if received, has been decreased from 95 per cent to 80 per cent. This amendment will take effect on or after 1 July 2010.
Taxation for in-kind contribution
The new revision allows the deferral of taxation on appreciated value of assets contributed in-kind for all assets (only for tangible business property and stock prior to the revision), as well as for contribution into an existing company and a newly established company, as long as 80 per cent or more of continuity of shareholder interest is preserved by the end of the fiscal year in which the in-kind contribution is made. This amendment will take effect on or after 1 July 2010.
IX COMPETITION LAW
i Overview of recent trends
On 8 May 2009, the KFTC reorganised its internal structure. One particularly notable aspect of this reorganisation is the creation of the eight-member Business Combination Division dedicated to the review of merger notifications, within the Market Structure Improvement Bureau of the KFTC. Previously, merger notifications were reviewed by five different divisions within the Market Monitoring Bureau. With the creation of the Business Combination Division, together with the Market Analysis Division (responsible for setting merger review policies) and the Economic Analysis Division (supporting the Business Combination Division with economic analysis) within the same Bureau, the KFTC is hoping to enhance the level of diligence in the merger review process, ensure more consistency in the application of competition laws to the merger review process and facilitate the introduction of the latest developments in competition law in other advanced countries.
Korea
316
Already, we are seeing some changes in the way that the Business Combination Division is reviewing merger notifications. For example, the KFTC now tends to conduct a closer examination of the impact of an overseas merger on the Korean market, even if the applicant argues the relevant geographical market as the global or regional market. The case examiners tend to recognise the global or regional market as the relevant geographical market only after they have examined the effect on the Korean market and seeing sufficient evidence of competition from imported products. Therefore, it is becoming more important to carefully review the effect of a merger on the Korean market. Also, previously, the KFTC tended to focus on the unilateral effect and coordination effect in horizontal merger cases, and the case examiners accordingly had a tendency to request information on other aspects of a merger in a simplified manner. However, the case handlers are now taking a closer look at the vertical effects and conglomerate merger issues in merger cases and are requesting more extensive information and materials relating to the merger so that they may properly and carefully analyse the impact of a merger from all perspectives.
The KFTC plans to continue to enhance and upgrade the level of scrutiny given to merger filings in Korea so that the merger review standards of the KFTC will approach those of the competition authorities in other advanced nations.
ii Recent changes in business combination report filing rules
Overview of filing rules
Under Korean law, business combination activities, such as an acquisition of shares or assets, establishment of a joint venture, or merger, between two offshore (non-Korean) companies are subject to the business combination filing requirement in Korea if: one party’s total assets or sales are 200 billion won or more (as determined by total affiliated companies’ assets or sales on a worldwide basis) and those of the other party are 20 billion won or more; and the sales of the acquirer and the acquired in or into the Korean market in each case (as determined by total affiliated companies’ sales in or into the Korean market) are 20 billion won or more.
In determining the acquirer’s (and the acquired’s) affiliated companies’ sales in the Korean market, the sales by a company who was an affiliated company of the acquirer (or the acquired) prior to the business combination and who remains to be an affiliated company after the business combination are counted.
Amendment to the filing rules
On 25 March 2009, the Korean National Assembly passed a bill amending the Monopoly Regulation and Fair Trade Law (‘the MRFTL’) to abolish the 30-day filing deadline for a pre-closing notification, which came into effect as of 26 June 2009. Previously, a pre-closing merger notification had to be filed with the KFTC within 30 days of a triggering event (e.g., the signing of a definitive share purchase agreement), which put parties engaged in a complicated transaction under significant time pressure to gather information and prepare a notification for a timely submission. Under the amended MRFTL, the submission of a pre-closing notification may be made at any time before the closing of the transaction, provided that the KFTC’s clearance is obtained before the closing.
Korea
3�7
Revision of Surcharge Guideline
As of 23 April 2009, the KFTC adopted a completely revised Guideline on Imposing Surcharges for Violation of Obligation to Notify Business Combination (‘the Surcharge Guideline’).
Under the new Surcharge Guideline, the amount of the actual surcharges imposed by the KFTC for violation of the notification obligation is determined under a step-by-step review process:a first, the basic amount for each case of violation (ranging from 1 million to
20 million won in the case of violation of the post- or pre-closing notification obligation, and a fixed 70 million won in the case of false notification) will be revised to yield the standard amount, depending on the number of days in delay of the notification deadline and the number of past violations;
b the standard amount will be multiplied by a discretionary adjustment ratio to yield the discretionary adjusted amount, whereby the discretionary adjustment ratio reflects the aggravating and mitigating circumstances present in each case of violation; and
c finally, the sum of the standard amount and the discretionary adjusted amount will be the actual imposed amount, allowing the KFTC to further reduce the sum by 50 per cent if it considers such reduction reasonable in light of the given circumstances.
The new Guideline went into effect as of 23 April 2009 for violations that occurred prior to this effective date; however, the previous Guideline will be applicable if the surcharge amount under the previous Guideline is less than that under the new Guideline.
X OUTLOOK
As the global and Korean economies recover from the recent recession, the Korean M&A market is generally expected to become more active in 2010. More Korean companies are expected to be aggressive in expanding their businesses through M&A both inside and outside of Korea. Many sizeable M&A deals are in the pipeline, in large part due to vigorous restructuring efforts of large Korean conglomerates and the privatisation plans for certain government-controlled entities.
In addition, we predict that the Korean government’s policy direction for increased foreign investment and an M&A-friendly environment will contribute to the revitalisation of the Korean M&A market.
Historically, most M&A investors in Korea have been US and European companies. However, more and more investors during recent years have been from other jurisdictions. For example, Chinese companies have been active investors in the Korean market over the past few years. Also, domestic investors have become more active in the Korean M&A market as purchasers. We believe this trend will grow stronger in the near future.
About the Authors
Sang Hyuk PaRkKim & Chang
Sang Hyuk Park is a senior foreign attorney at Kim & Chang. He has extensive experience in the areas of mergers and acquisitions, private equity and venture capital investments, lending transactions, capital markets, and joint ventures and collaborations. Mr Park advises leading private equity funds, their portfolio companies, and strategic buyers and sellers in domestic and cross-border transactions. Fluent in English and Korean, Mr Park has particular experience and expertise in advising clients on significant cross-border M&A, corporate finance and joint venture transactions.
Before joining Kim & Chang, Mr Park practised law in New York, New York for 13 years at Dechert LLP, where he was a partner in the corporate & securities department. Prior to joining Dechert LLP, Mr Park was a foreign attorney at Kim & Chang between 1994 and 1996. Mr Park is a graduate of the University of Chicago (BA, with honours, 1990) and Cornell Law School (JD, 1993), where he was a note editor of the Cornell International Law Journal. Mr Park is a member of the New York Bar.
gene OH kIMKim & Chang
Gene Oh Kim is a partner in the corporate department at Kim & Chang. His primary areas of focus include antitrust and competition law matters involving overseas and domestic clients as well as mergers and acquisitions transactions, advising clients on the full range of issues from regulatory, corporate governance, structuring and general corporate and commercial law issues.
Mr Kim has advised numerous companies around the world – including industrial, banking, insurance, and private equity clients – in a wide variety of cross-border and domestic merger and acquisitions transactions, and Mr Kim counts among his clients some of the market leaders in their respective industries.
Mr Kim received his law degree from Seoul National University, College of Law in 1995 and graduated from the Judicial Research and Training Institute of the Supreme Court of Korea in 1997. He also received his LLM from Harvard Law School in 2006. He is a member of the Bar of the Republic of Korea and the New York State Bar.
kIM & CHangSeyang Building223 Naeja-dong, Jongno-guSeoul 110-720KoreaTel: +82 2 3703 1114Fax: +82 2 737 9091/[email protected]