FSC to Switch Merger Pricing from Market Value to Fair Value; Expands External Evaluation and Disclosure

The basis for calculating merger prices for listed companies will be changed from market value to fair value, and disclosures will be strengthened so that shareholders can understand the fairness of transactions and interests involved.

The Financial Services Commission (FSC) announced today (the 15th) that it will begin legislative notice starting on the 16th for revisions to the Enforcement Decree of the Capital Markets Act and the Regulation on Securities Issuance and Disclosure containing these measures.

In accordance with the enforcement of the Capital Markets Act on December 9, listed corporations pursuing mergers and other restructuring in the future must apply a fair value that comprehensively considers asset value (net assets divided by total issued shares) and earnings value, rather than just market value, when calculating prices.

The aim is to block incentives for controlling shareholders and others to suppress stock prices.

Accordingly, detailed calculation methods under the Enforcement Decree of the Capital Markets Act have been removed, allowing various valuation factors to be comprehensively considered to fit the characteristics of each transaction.

In addition, if measures are taken to ensure fairness during the merger process—such as establishing a special committee—board opinion statements containing related details must be disclosed through securities registration statements and material fact reports.

External evaluation items will also be expanded.

In addition to the existing evaluation of the appropriateness of "prices and transaction conditions," the scope will be expanded to include ▲ the appropriateness of valuation methods, ▲ the rationality of major assumptions, and ▲ valuation difficulties, with related details also included in the disclosure subjects.

The FSC explained, "This is to provide high-quality information that allows shareholders to verify and confirm through what procedures and judgments a transaction was pursued."

For mergers between affiliates, details such as equity investments, debt guarantees, concurrent holding of executive positions, and changes in shareholdings between the specially related persons of the corporation and the counterpart corporation must be stated in the main text of the securities registration statement.

This enables investors to understand the interests between the parties and preemptively blocks the setting of transaction conditions biased toward specific shareholders.

Furthermore, the method for calculating the purchase price for appraisal rights will also be subject to evaluation by an external evaluation institution, and the details must be disclosed.

Previously, purchase prices were merely presented mechanically according to the calculation methods prescribed by law.

Financial authorities expect that shareholders opposing mergers will also have the value of their shares reasonably evaluated and be guaranteed a fair opportunity to recover their investments.

Following the legislative notice until October 6, the revision is scheduled to take effect on December 9 after undergoing regulatory review, resolutions by the Securities and Futures Commission and the FSC, review by the Ministry of Government Legislation, and resolutions by the vice-ministerial and Cabinet meetings.

(Photo: Provided by Financial Services Commission, Yonhap News)
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