The Fair Trade Commission of Korea (FTC) has amended its guidelines for filing an antitrust clearance/business combination report, with effect from July 1 2003.
Under the amended guidelines, M&A deals between foreign parties, along with overseas acquisitions by Korean companies, will be subject to the report-filing requirement in Korea if each side involved (together with its affiliates) has annual sales of W3 billion ($2.5 million) or more in the Korean market.
Under the Monopoly Regulation and Fair Trade Act of Korea (MRFTA), a company must file an antitrust report with the FTC when among other things: (a) acquiring a principal portion of another company's assets; (b) carrying out a merger; (c) buying at least a fifth (but less than the whole) of the voting stock of a new company; or (d) acquiring at least a fifth (15% in the case of listed companies) of the voting stock of an existing company.
The antitrust report is a pre-closing requirement if the transaction is of type (a), (b) or (c) and the buyer or target, with its respective affiliates, has total assets or annual sales of W2 trillion or more. Otherwise the report may be submitted after closing. The requirement does not apply unless one side, together with its affiliates, has total assets or annual sales of W100 billion or more.
Extraterritorial application of the requirement has been a subject of doubt. Nothing in the MRFTA excludes application to Korean acquisitions overseas or even foreign-foreign deals. However, existing FTC guidelines do not provide for application to such cases, nor has this been the FTC's practice.
Under the amended FTC guidelines, a report must be filed in all of the situations noted above, even if involving only foreign parties or foreign assets, so long as each of the two companies involved, together with its affiliates, has annual sales of W3 billion in the Korean market. (The threshold of one or the other side having W100 billion in total assets / annual sales continues to apply.)
The FTC stresses that Korean sales of each company's affiliates will be added towards the W3 billion threshold. However, entities that cease to be affiliates in the course of the transaction, such as by disposing of shares, are not counted.
Take for example a stock deal involving three foreign companies: AmeriCo (whose consolidated group has W3 trillion in total assets) buys from EuroCo all of EuroCo's shares in JapanCo, representing a fifth of JapanCo's capital. Based on the new guidelines, if AmeriCo and its affiliates have W3 billion in Korean sales, and JapanCo and its affiliates (excluding EuroCo) have W3 billion in Korean sales, a report should be filed with the KFTC no later than 30 days after closing.
If, instead of a stock deal, AmeriCo is to acquire a large part of JapanCo's assets, a report should be filed pre-closing, and a standstill period will apply.
Until now, it has been normal practice to proceed with foreign-foreign M&A transactions on the assumption that no report need be filed under the MRFTA, absent some type of collusive practice or unusual anticompetitive concern. In light of the new guidelines, however, it may be necessary to review proposed overseas M&A transactions for a possible nexus of sales in the Korean market.
The new guidelines may raise a number of questions. For example, at least in the case of a business transfer, it might be supposed that the W3 billion threshold should apply only to sales in the particular industry, but this is not indicated. Much remains to be clarified in the course of administration of the new rules, as a matter of FTC practice and policy.