Mergers & Acquisitions in 60 jurisdictions worldwide Contributing editor: Casey Cogut
2011 Published by Getting the Deal Through in association with: Aabø-Evensen & Co Advokatfirma Æ´LEX Arendt & Medernach Arias, Fábrega & Fábrega Baião, Castro & Associados | BCS Advogados Bersay & Associés Biedecki bizconsult law LLC Bowman Gilfillan Inc Carey y Cía Corpus Legal Practitioners Coulson Harney Debarliev, Dameski & Kelesoska Attorneys at Law Divjak, Topi´c & Bahtijarevi´c ELIG Attorneys-at-Law Estudio Trevisán Abogados Freshfields Bruckhaus Deringer LLP Gleiss Lutz Grata Law Firm Harneys Aristodemou Loizides Yiolitis LLC Headrick Rizik Alvarez & Fernández Herzog Fox & Neeman Hoet Peláez Castillo & Duque Abogados Homburger AG Hoxha, Memi & Hoxha Iason Skouzos & Partners JA Treviño Abogados Jade & Fountain PRC Lawyers Jose Lloreda Camacho & Co Kettani Law Firm Khaitan & Co Kim & Chang Kimathi & Kimathi, Corporate Attorneys Law Office of Mohanned bin Saud Al-Rasheed in association with Baker Botts LLP LAWIN LAWIN Lideika, Petrauskas, Vali¯unas ir partneriai Madrona Hong Mazzuco Brandão – Sociedade de Advogados Mello Jones & Martin Nagashima Ohno & Tsunematsu NautaDutilh Nielsen Nørager Odvetniki Šelih & partnerji, op, doo Pérez-Llorca Salomon Partners Schönherr Setterwalls Advokatbyrå Simont Braun SCRL Simpson Thacher & Bartlett LLP Slaughter and May Stikeman Elliott LLP Thanathip & Partners Ughi e Nunziante Vlasova Mikhel & Partners Voicu & Filipescu SCA Weil, Gotshal & Manges LLP Wolf Theiss Wong Beh & Toh WongPartnership LLP Wu & Partners, Attorneys-at-Law
Mergers & Acquisitions 2011 Contributing editor Casey Cogut Simpson Thacher & Bartlett LLP Business development managers Alan Lee George Ingledew Robyn Hetherington Dan White Marketing managers Sarah Walsh Ellie Notley Alice Hazard Marketing assistants William Bentley Sarah Savage Subscriptions manager Nadine Radcliffe [email protected]
GettingTheDealThrough.com Assistant editor Adam Myers Editorial assistants Nina Nowak Lydia Gerges Senior production editor Jonathan Cowie Chief subeditor Jonathan Allen Senior subeditor Kathryn Smuland Production editor John Harris Subeditors Chloe Harries Davet Hyland Editor-in-chief Callum Campbell Publisher Richard Davey Mergers & Acquisitions 2011 Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: +44 20 7908 1188 Fax: +44 20 7229 6910 © Law Business Research Ltd 2011 No photocopying: copyright licences do not apply. First published 2000 Twelfth edition 2011 ISSN 1471-1230 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. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of May 2011, be advised that this is a developing area.
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Global Overview Casey Cogut and Sean Rodgers Simpson Thacher & Bartlett LLP 3 European Overview Stephen Hewes and Richard Thexton Freshfields Bruckhaus Deringer LLP 5 Albania Shpati Hoxha Hoxha, Memi & Hoxha 8 Argentina Pablo Trevisán and Laura Bierzychudek Estudio Trevisán Abogados 14 Austria Christian Herbst Schönherr 20 Belarus Tatiana Emelianova and Andrej Ermolenko Vlasova Mikhel & Partners 26 Belgium Sandrine Hirsch and Vanessa Marquette Simont Braun SCRL 31 Bermuda Peter Martin, Andrew Martin and Anthony Rasoulis Mello Jones & Martin 37 Brazil Maria PQ Brandão Teixeira Madrona Hong Mazzuco Brandão – Sociedade de Advogados 43 Bulgaria Kaloyan Ivanov Todorov Wolf Theiss 49 Canada Richard E Clark and Curtis A Cusinato Stikeman Elliott LLP 55 Merger Control in Canada Susan M Hutton Stikeman Elliott LLP 60 Chile Pablo Iacobelli and Cristián Eyzaguirre Carey y Cía 63 China Lawrence Guo, Henry Xiao and Sophie Sha Jade & Fountain PRC Lawyers 68 Colombia Enrique Álvarez and Santiago Gutiérrez Jose Lloreda Camacho & Co 74 Croatia Damir Topi´c and Mate Lovri´c Divjak, Topi´c & Bahtijarevi´c 80 Cyprus Nancy Ch Erotocritou Harneys Aristodemou Loizides Yiolitis LLC 84 Czech Republic Paul Sestak and Michal Pravda Wolf Theiss 88 Denmark Thomas Weisbjerg, Jakob Mosegaard Larsen and Martin Rudbæk Nielsen Nielsen Nørager 93 Dominican Republic Roberto Rizik Cabral, Sarah De Leon and Claudia Taveras Headrick Rizik Alvarez & Fernández 99 England & Wales Michael Corbett Slaughter and May 104 France Sandrine de Sousa and Yves Ardaillou Bersay & Associés 113 Germany Gerhard Wegen and Christian Cascante Gleiss Lutz 119 Ghana Kimathi Kuenyehia, Sr, Atsu Agbemabiase and Kafui Baeta Kimathi & Kimathi, Corporate Attorneys 127 Greece Evgenia Stamatelou-Mavromichali Iason Skouzos & Partners 133 Hungary David Dederick, László Nagy and Eszter Katona Weil, Gotshal & Manges LLP 139 India Rabindra Jhunjhunwala and Bharat Anand Khaitan & Co 144 Israel Alan Sacks and Daniel Lipman Lowbeer Herzog Fox & Neeman 150 Italy Fiorella Federica Alvino Ughi e Nunziante 156 Japan Ryuji Sakai, Kayo Takigawa and Yushi Hegawa Nagashima Ohno & Tsunematsu 161 Kenya Richard Harney and Haanee Khan Coulson Harney 166 Korea Sang Hyuk Park and Gene Oh Kim Kim & Chang 172 Latvia Raimonds Slaidins and Kristine Meija LAWIN 177 ˇ ioˇcys LAWIN Lideika, Petrauskas, Vali¯unas ir partneriai Lithuania Robertas C 182 Luxembourg Guy Harles and Saskia Myners Arendt & Medernach 190 Macedonia Emilija Kelesoska Sholjakovska and Elena Miceva Debarliev, Dameski & Kelesoska Attorneys at Law 197 Malaysia Wong Tat Chung Wong Beh & Toh 203 Mexico Daniel I Puente Medina and Mauricio Garza Bulnes JA Treviño Abogados 209 Morocco Nadia Kettani Kettani Law Firm 214 Netherlands Willem Calkoen and Martin Grablowtiz NautaDutilh 220 Nigeria Theophilus Emuwa and Chinyerugo Ugoji Æ´LEX 226 Norway Ole K Aabø-Evensen Aabø-Evensen & Co Advokatfirma 231 Panama Julianne Canavaggio Arias, Fábrega & Fábrega 240 Poland Radoslaw Biedecki and Ludomir Biedecki Biedecki 245 Portugal Victor de Castro Nunes, Maria José Andrade Campos and Cláudia de Meneses 252 Baião, Castro & Associados | BCS Advogados Romania Georgiana Badescu Voicu & Filipescu SCA 259 Russia Anton Klyachin and Igor Kuznets Salomon Partners 264 Saudi Arabia Babul Parikh and Shadi Haroon Law Office of Mohanned bin Saud Al-Rasheed 269 in association with Baker Botts LLP Singapore Wai King Ng and Fi Ling Quak WongPartnership LLP 275 Slovenia Natasa Pipan Nahtigal, Bostjan Kavsek and Luka Grasselli Odvetniki Šelih & partnerji, op, doo 284 South Africa Ezra Davids and David Yuill Bowman Gilfillan Inc 291 Spain Vicente Conde Pérez-Llorca 297 Sweden Anders Söderlind, Carl-Johan Bune, Johan Strömbäck, Anders Holmgren, 303 Mattias Bergström and Ola Grahn Setterwalls Advokatbyrå Switzerland Claude Lambert, Dieter Gericke, Dieter Grünblatt and Gerald Brei Homburger AG 308 Taiwan Jerry Chen Wu & Partners, Attorneys-at-Law 316 Thailand Chawaluck Sivayathorn Araneta and Vipavee Kaosala Thanathip & Partners 322 Turkey S Tunç Lokmanhekim and Erman Öncel ELIG Attorneys-at-Law 327 United Arab Emirates Patrick Ko and Omar Momany Freshfields Bruckhaus Deringer LLP 335 United States Casey Cogut and Sean Rodgers Simpson Thacher & Bartlett LLP 341 Uzbekistan Bakhodir Jabborov Grata Law Firm 346 Venezuela Jorge Acedo and José Alberto Ramírez Hoet Peláez Castillo & Duque Abogados 352 Vietnam Tuan Nguyen, Phong Le, Hanh Bich, Huyen Nguyen and Hai Ha bizconsult law LLC 356 Zambia Corporate Advisory Department and Mergers and Acquisitions Practice Group Corpus Legal Practitioners 362 Appendix: International Merger Control David E Vann Jr and Ellen L Frye Simpson Thacher & Bartlett LLP 367 www.gettingthedealthrough.com
Kim & Chang
Korea Sang Hyuk Park and Gene Oh Kim Kim & Chang
1 Types of transaction How may businesses combine?
Business combinations typically take the form of a share transfer or subscription, asset transfer (including business transfer), joint venture, merger or consolidation. Under Korean law, a spin-off and merger can be completed in one transaction. 2 Statutes and regulations What are the main laws and regulations governing business combinations?
The Korean Commercial Code provides for general business and corporate regulations governing Korean companies, including regulations relating to the acquisition of shares or assets, mergers, spin-offs and other transaction structures. If the acquisition involves shares of a Korean company listed on the Stock Market Division of the Korea Exchange (KRX) or registered on the Kosdaq Market Division of the KRX, the Financial Investment Services and Capital Markets Act (Capital Markets Act) and other related rules and regulations will apply. M&A transactions are also subject to the reporting requirements of the Korea Fair Trade Commission (FTC) under the Monopoly Regulation and Fair Trade Law (FTL), which is the general antitrust statute. If the business combination is a crossborder transaction, the Foreign Investment Promotion Law or the Foreign Exchange Transaction Law, as the case may be, would be applicable.
that are listed (or registered) on the Stock Market Division or Kosdaq Market Division of the KRX, the Capital Markets Act requires the acquirer to file a tender offer statement to launch a takeover bid. When a merger, spin-off or business transfer involves a listed company, in addition to the general disclosure requirements, the Capital Markets Act requires the listed company to file a report with the Stock Market Division or Kosdaq Market Division of the KRX and the Financial Supervisory Service (FSS). In addition, beneficial ownership of 5 per cent or more of the shares of a listed company triggers a filing requirement. A tender offer or proxy solicitation is also subject to a filing requirement. In certain circumstances, investments in a Korean company or a company that has business in Korea may trigger an antitrust filing requirement and a review by the FTC. Under the FTL, an antitrust filing should be made when the trans action involves, among others: • the acquisition of all of (or a major portion of) the business or assets of a target company; • the purchase of shares of an existing company, and as a result of such transaction, the acquirer (together with its affiliates) becomes a shareholder holding 20 per cent (15 per cent in the case of a company publicly listed (or registered) on the Stock Market Division or Kosdaq Market Division of the KRX) or more of the voting shares of the target company; or • a merger between companies, – in each case, if one of the parties to the business combination has (together with its affiliates) assets or revenues equal to or exceeding 200 billion won and the other party has (together with its affiliates) assets or revenues equal to or exceeding 20 billion won.
3 Governing law What law typically governs the transaction agreements?
Typical transaction documents include a share purchase or subscription agreement, an asset transfer agreement, a merger agreement and/or a joint venture or shareholders’ agreement. The other legal documentation can vary depending on the particulars of the transaction. Typically, the share subscription agreement (involving issuance and purchase of new shares), a joint venture or shareholders’ agreement (involving, among others, corporate governance matters) and the merger agreement are governed by Korean law. The governing law of the other transaction documents varies depending on the agreement of the parties. 4 Filings and fees Which government or stock exchange filings are necessary in connection with a business combination? Are there stamp taxes or other government fees in connection with completing a business combination?
If either party to the transaction has assets or revenues equal to or exceeding 2 trillion won, in general a pre-closing filing will be required, in which case the transaction may not be consummated while the FTC is undergoing its 30-day review (which can be extended by an additional 90 days). If a transaction that satisfies the aforementioned thresholds for antitrust filing is not subject to pre-closing filing requirements, it will be subject to post-closing filing obligations. In such cases, the filing must be made within 30 days after the close of the transaction. Certain overseas transactions having an effect on the Korean market may also trigger a Korean filing requirement based on the amount of revenue the relevant parties (together with its affiliates) have in relation to Korea. There are no stamp taxes or other governmental fees (other than stamp duties due under certain circumstances which are nominal in amount) relating specifically to business combinations. However, the transaction will be subject to various Korean taxes depending on the structure of the transaction (see question 18).
If the acquiring company is a foreign company, it must file a prior report on the acquisition of shares with the Ministry of Knowledge Economy (MKE) through a foreign exchange bank pursuant to the Foreign Investment Promotion Law. For acquisitions of companies
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5 Information to be disclosed What information needs to be made public in a business combination? Does this depend on what type of structure is used?
A publicly listed company involved in a merger must submit a merger report to the FSS and the Stock Market Division or Kosdaq Market Division of the KRX, as applicable, which is made publicly available. A merger report is required to disclose certain matters relating to the contemplated merger and the parties to the merger. In the case of a business or asset transfer or spin-off, a similar filing is required. A tender offer or proxy solicitation also requires certain information to be disclosed in the prescribed forms provided under the Capital Markets Act. In the case of the report filed with the FTC under the FTL, the contents of such report are submitted to the FTC and are not available to the public. 6 Disclosure of substantial shareholdings What are the disclosure requirements for owners of large shareholdings in a company? Are the requirements affected if the company is a party to a business combination?
Under the Capital Markets Act, once an investor (including specially related persons and other parties acting in concert) holds 5 per cent or more of the voting shares or certain other equity securities issued by a listed company, the investor must file a report regarding such acquisition with the Financial Services Commission (FSC) within five business days. For the purpose of this report, the foreign investor is deemed to hold the shares upon entering into a share purchase agreement. An addendum report should be filed within five business days of any change of 1 per cent or more in such holdings (in the case of passive portfolio investment, by the 10th day of the following month). When filing this report, the investor must indicate whether the investment is a passive portfolio investment, or whether the investor has any intent to exert any influence over the management of the company. A filing obligation is also triggered if the purpose of the investment changes. In the case of an investment with the purpose of participating in the management of a company, a five-day cooling-off period will be applicable after the 5 per cent report is filed, during which period the investor may not exercise voting rights or purchase additional shares. Where the holdings of the investor reaches 10 per cent or more of the issued and outstanding voting shares of the listed Korean company, a separate report should be filed within five business days, and any change in shareholding must be reported within five business days of such change. In addition, a public company must disclose the details of all transactions with the largest shareholder (including affiliates) in its periodic reports filed with the FSS. 7 Duties of directors and controlling shareholders What duties do the directors or managers of a company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combination? Do controlling shareholders have similar duties?
Under Korean law, directors are deemed to be fiduciaries of the company and are considered to owe a duty of care and loyalty to the company. The applicable standard of care is one of a good manager. In the view of the majority of commentators, the standard of care is described as the same degree of fidelity and care needed, generally and objectively, as an ordinarily prudent man. Directors are required to act with care, in light of their actual knowledge and such knowledge as they should have gained by exercising reasonable care and skill. Korean law does not specifically impart any duties to controlling shareholders in relation to a business combination. However, a controlling shareholder may be found to be a de facto director, and thereby owe fiduciary duties to the company, if the controlling shareholder exercises control over the decisions made by a director.
Historically, leveraged buyout transactions (LBO) in Korea have raised liability issues for the transaction parties and the target companies’ directors, particularly in connection with breach of fiduciary duty of directors. Under Korean law, breach 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, recently there have been a couple of meaningful court decisions which may provide more guidance in relation to structuring an LBO in Korea, and considerations and procedures that the board needs to give and take to uphold 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 pushdown structure. 8 Approval and appraisal rights What approval rights do shareholders have over business combinations? Do shareholders have appraisal or similar rights in business combinations?
Certain transactions such as mergers or the acquisition of a part of a business of another company which significantly affect the acquiring company’s business are subject to approval of a special resolution of the shareholders of the company. Special resolution of shareholders requires the affirmative vote of two-thirds of the shareholders at a shareholders’ meeting, comprising at least one-third of the total issued and outstanding shares, unless the articles of incorporation of the company provides for a higher voting threshold for such special resolutions. In such cases, the shareholders have appraisal rights that are determined by a set formula in the case of publicly listed companies, by private negotiation, or by the court. Such appraisal rights are available to shareholders who have duly recorded their dissent to the proposed transaction at the relevant shareholders’ meeting. 9 Hostile transactions What are the special considerations for unsolicited transactions?
Korean law does not distinguish between hostile and voluntary takeover bids. They are both subject to the same takeover laws and regulations. The board of the target company is allowed, but not required, to express its opinion on the tender offer. However, the Ministry of Justice proposed amendments to the Korean Commercial Code setting forth legislation on poison pills to address certain concerns of protecting companies from hostile acquisition attempts, and the amendment is under consideration by the National Assembly. The scope and timing of the enactment of such regulation have not been determined. 10 Break-up fees – frustration of additional bidders Which types of break-up and reverse break-up fees are allowed? What are the limitations on a company’s ability to protect deals from third-party bidders?
Break-up fees, reverse break-up fees or any other similar arrangements are a matter of contract between the parties. If the break-up fee is subsequently challenged as being unreasonably excessive and is deemed to be an arrangement for liquidated damages for the purpose of Korean law, a court has discretion to reduce the amount. If the target company is a party to any such arrangement, fiduciary duty implications should be considered.
Korea With respect to ‘financial assistance’ provided by the target to an acquirer for purposes of financing the transaction, the provision of such assistance can raise issues under the FTL, which regulates the provision of ‘undue support’ between affiliated companies. It also raises other issues such as breach of fiduciary duty on the part of the target company’s directors that approved the provision of such support (see question 7). Such support provided to a non-resident acquirer may also raise foreign exchange control issues. 11 Government influence Other than through relevant competition regulations, or in specific industries in which business combinations are regulated, may government agencies influence or restrict the completion of business combinations, including for reasons of national security?
Other than for antitrust regulations or in specific regulated industries, government agencies do not have the authority to restrict the completion of a business combination. However, a cross-border transaction will be subject to certain government reporting or approval requirements. Also, certain cross-border transactions may be restricted for reasons of national security (eg, impeding local manufacturing of defence industry items or disclosure of state secrets). 12 Conditional offers What conditions to a tender offer, exchange offer or other form of business combination are allowed? In a cash acquisition, may the financing be conditional?
Under the Capital Markets Act, only the following conditions are permitted in a tender offer: if the total number of tendered shares is less than that intended to be purchased by the tender offeror, the offeror will not purchase any of the shares tendered; or if the total number of tendered shares exceeds the number intended to be purchased by the tender offeror, the offeror will purchase pro rata from tendering holders the number of shares the offeror intended to purchase. A tender offeror is required to present evidence that it holds cash or cash equivalent of the entire funds required for the tender offer. 13 Financing If a buyer needs to obtain financing for a transaction, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?
We do not see any significant difference in terms of how the acquisition financing condition is dealt with in the transaction documents in Korea, as compared to other jurisdictions. Basically, it is a matter of negotiation and contract between the parties. It is not uncommon for a buyer to provide a representation and warranty regarding its financial capabilities. A buyer may attempt to add successful financing as a condition to closing, but sellers are usually reluctant to accept such condition. In Korea, a seller often runs an auction for the contemplated M&A transaction, in which case, bidders are usually required to submit appropriate evidence of their financial capabilities (including a proper acquisition financing arrangement) and such financial capability is one of the major factors affecting the selection of the preferred bidder by the seller. 14 Minority squeeze-out May minority stockholders be squeezed out? If so, what steps must be taken and what is the time frame for the process?
There is currently no mechanism under Korean law that can result in minority stockholders being squeezed out. Recently, however, the Korean Commercial Code was amended to allow a minority squeezeout by the major shareholder, if it has at least 95 per cent of the outstanding shares in the relevant company. In such cases, minority
Kim & Chang shareholders will have a right to request the major shareholder to purchase their shares. These amendments are expected to come into force in April 2012. 15 Cross-border transactions How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
By virtue of the Korean government’s liberalisation policy, the number of restricted or prohibited business activities has been reduced so that almost all areas of Korean business are open to foreign investment. Korea uses a negative list system, which means that a business is open to foreign investment unless it is specifically restricted. There are several business sectors that are still restricted and certain cross-border transactions may be restricted for national security reasons. For example, with respect to certain telecommunications companies, the aggregate foreign ownership of such companies cannot exceed 49 per cent of the total outstanding shares. With respect to electric transmission or electric distribution companies, the aggregate foreign ownership must be less than 50 per cent of the total outstanding shares, and the largest shareholder cannot be a foreign investor. Foreign direct investment (generally meaning a purchase by a non-Korean entity of 10 per cent or more of the shares of a Korean company) is subject to the reporting requirements in accordance with the Foreign Investment Promotion Law. In addition, certain aspects of cross-border transactions (especially when accompanied with the outflow of funds from Korea) are subject to the reporting or approval requirements under the Foreign Exchange Transaction Law. The Capital Markets Act requires the trading of listed stock that is open to foreigners under the Foreign Exchange Transaction Law to be made through a qualified stock exchange, with some exceptions. 16 Waiting or notification periods Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations?
Mergers and consolidations require a certain creditor protection procedure. For a period of at least one month after the approval of the transaction by the shareholders at a shareholders’ meeting, the creditors may demand repayment of their debt or the company must provide appropriate security to the relevant creditor. 17 Sector-specific rules Are companies in specific industries subject to additional regulations and statutes?
Acquisition of shares in companies operating in certain regulated industries such as banking, telecommunication, broadcasting and defence is subject to additional laws and restrictions. For example, acquisition of shares in a bank may be subject to filing and approval requirements of the FSC under the Bank Act. Similarly, acquisition of shares in a telecommunication service provider may be subject to filing and approval requirements of the Korea Communications Commission under the Telecommunications Business Act. 18 Tax issues What are the basic tax issues involved in business combinations?
The tax treatment of a business combination will depend on the structure of the transaction. In the case of a share transfer, the transaction will subject the seller to capital gains tax and a securities transaction tax (0.3 per cent to 0.5 per cent of the transfer price). If the seller is a foreign entity with no permanent establishment in Korea and the capital gains derived by the seller are not exempted under the applicable tax treaty, the purchaser is required to withhold the applicable capital gains tax. A share transfer transaction can also subject the purchaser Getting the Deal Through – Mergers & Acquisitions 2011
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Update and trends As the global and Korean economies recover from the recent recession, the Korean M&A market is generally expected to become more active in 2011. In particular, many sizeable M&A deals are in the pipeline, in large part due to vigorous restructuring efforts of Korean chaebols (large conglomerates) and the privatisation plans for certain government-controlled entities. Further, the Korean government’s policy direction towards more foreign investment and an M&A-friendly environment, as well as the anticipated enactment of the Korea-USA FTA and the Korea-EU FTA, should contribute to the continued growth of foreign direct investments in Korea and the revitalisation of the Korean M&A market. Historically, most M&A investors to 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. Certain key features of the recent amendments to the Korean
to a deemed acquisition tax on the net book value of certain assets of the target company. In the case of an asset transfer, the profit realised by the seller from the transfer of its business or assets is subject to ordinary corporate income tax (ie, 11 per cent, including surtax, for the first 200 million won and 24.2 per cent (which will be lowered to 22 per cent from 2012), including surtax, for any amount exceeding such amount). For the purchaser of assets, an acquisition tax is payable on the acquisition of certain properties (including real property and vehicles), normally at the rate of 4 to 4.6 per cent of the acquisition price. This rate is increased to 9.4 per cent if the real property acquired is located in the Seoul Metropolitan area (including Seoul and its surrounding areas), though there are some exceptions. In addition, the purchaser of real property is required to purchase a certain amount of housing bonds depending on the government posted value of the real property. If the purchase transaction is treated as a comprehensive business transfer, no value-added tax (VAT) will be imposed. Otherwise, VAT will be levied at the rate of 10 per cent of the purchase price allocated to those assets subject to VAT, which include inventories, machinery and equipment, buildings and goodwill. Land or accounts receivable, however, are not subject to VAT. If it is payable, the purchaser would generally be able to credit VAT (except, for example, the VAT on small passenger cars) paid against its VAT payable (or obtain a refund later if there is a shortfall) when it files a VAT return. Korean tax laws basically treat a merger as a taxable event. According to recently amended tax law, which has been effective since 1 July 2010, the merged company is liable for corporate income tax on capital gains resulting from a merger. The shareholders of the merged company may also be subject to taxation on their deemed dividend income. Surviving company’s gains realised from a merger due to a low purchase price are generally treated as taxable income. If certain requirements are satisfied, however, the merger transaction may qualify for certain tax exemptions or deferrals, or both. Even if such requirements are not satisfied, however, some tax benefits are available in mergers between a parent company and a 100 per cent subsidiary, where the surviving company post-merger is the parent. The surviving company must also pay a registration and licence tax on increased paid-in capital due to the issuance of new shares and is also subject to property acquisition tax with regard to the registration of the title transfer, unless an exemption is available.
Commercial Code are expected to affect the conduct of mergers and acquisitions. For instance, while the Korean Commercial Code currently only recognises shares of the surviving entity as merger consideration, the amended Korean Commercial Code will recognise other, more diversified forms of merger consideration. In addition, under the new legal regime, joint-stock companies will be able to issue more varied types of shares, and the Korean Commercial Code will also feature exceptions from the complex in-kind contribution procedures in Korea. Further, as mentioned in question 14, the amended Korean Commercial Code includes minority squeeze-out procedures. With these revisions, more diverse forms of mergers and acquisitions are expected to emerge in Korea. Finally, the FTC has proposed amendments to the FTL in order to reduce the scope of the business combination notification requirement. Further, the proposed amendments exempt from the notification requirement business combinations involving a company established solely for investment purposes or to conduct business solely in a specific field.
19 Labour and employee benefits What is the basic regulatory framework governing labour and employee benefits in a business combination?
With respect to share acquisitions, there is no change in the company’s relations with its employees. For mergers, the surviving corporation assumes each of the merging company’s labour liabilities by operation of law. In an asset transfer, the purchaser will automatically assume the historical labour liabilities if the transaction is deemed to be a ‘business transfer’ under the standards provided in the labour laws. If the transaction is deemed to be a business transfer, the purchaser will be bound by the terms of existing employment agreements and other commitments by operation of law (unless the employees agree otherwise) for the employees being transferred to the purchaser. The transferee may not offer employment terms to the transferring employees which are less advantageous to the transferring employees than those terms of employment provided by the transferor. 20 Restructuring, bankruptcy or receivership What are the special considerations for business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
Acquisitions of companies under insolvency proceedings will be subject to the Debtor Rehabilitation and Bankruptcy Law and supervised by the court and court-appointed receiver. The acquisition transaction will also require approval by certain groups of creditors unless the transaction is permitted under the terms of an already approved plan. For certain insolvent companies, separate out-of-court workout procedure, driven by creditor financial institutions, is available under Korean law. Specifically, pursuant to the Corporate Restructuring Promotion Act, a committee comprised of creditor financial institutions perform the pivotal role of organising and implementing such procedures. 21 Anti-corruption and sanctions What are the anti-corruption and economic sanctions considerations in connection with business combinations?
An important consideration in business combinations is compliance with antitrust/merger filing requirements as the FTC requires transactions between parties of a certain threshold to be reviewed pre-closing (see question 4). Violation of such filing requirements may potentially expose parties to significant sanctions. If an acquirer fails to comply with filing requirements, the FTC will impose an
Korea administrative penalty of up to 100 million won. Moreover, if the FTC determines that a particular M&A transaction has substantive anti-competitive impact on the relevant market, the FTC may take certain actions to unwind the transaction, including issuing an order requiring the acquirer to dispose of the relevant shares or assets. Various anti-corruption statutes and laws in Korea, including the Criminal Code, the Foreign Bribery Prevention Act and the Act Concerning Aggravated Punishment of Specific Economic Crimes, regulate the provision of gifts to public officials and others, by which corruption-related activities may be subject to criminal sanctions as
Kim & Chang well as civil liabilities. Though acquirers in business combinations are not automatically liable for the corrupt practices of the target company under Korean law, corporations may nevertheless be exposed to such liability in certain circumstances. For instance, in the case of mergers, the surviving corporation will assume the liability for any corrupt practices of the merging target company if such surviving corporation is assuming, in the transaction, the target’s liabilities by operation of law. Acquirers must further consider whether they will be liable for the corrupt practices of the merged target under the laws of their own jurisdiction.
Sang Hyuk Park Gene Oh Kim
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