The newly amended Securities and Exchange Act of Korea (SEA) took effect on March 29 2005 and is expected to impact the course of mergers and acquisitions in Korea. It reflects changes to provisions concerning tender offers and reports of mass holdings (the 5% Rule).
The SEA defines a tender offer as an offer to buy shares (including exchange with other securities) or solicitation of an offer to sell shares (including exchange with other securities) against many and unspecified persons, and buying them outside the securities market (for example, on the Korea Exchange). A tender offer tends to inhibit market transparency because the subject shares are sold outside of the market and a lot of shares (enough to result in the change of the target company's management) are involved. To protect investors and ensure equality among shareholders, the SEA requires the offeror to disclose, among others, the term of the tender offer, the number of subject shares and the proposed purchase price.
Changes imposed by the amended SEA include:
- The SEA restriction preventing offerors from purchasing shares until three days after public announcement of tender offer has been repealed, enabling offerors to purchase shares on the date the tender offer is announced.
- The SEA provisions restricting tender offers within six months of completion of a previous tender offer have been repealed.
- The SEA previously restricted any action by the target company that affected the number of outstanding shares with voting rights during the term of the tender offer. The amendment has repealed this restriction, allowing the target company to issue new shares even during the term of the tender offer.