The Financial Services Commission announced that a revision bill for the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) intended to upgrade rules on corporate mergers and acquisitions (M&As) was approved by the government at the cabinet meeting held on November 19. The revised Enforcement Decree addresses the following—(a) improving rules on determining merger prices when M&As take place between nonaffiliated business entities, (b) strengthening disclosure duties, and (c) revamping rules on the external evaluation process.

First, the revised Enforcement Decree will improve rules on calculating and determining merger prices when M&As take place between nonaffiliated business entities. Previously, the Enforcement Decree had a provision directly regulating specific methods for calculating merger prices for M&As taking place between both affiliated companies and nonaffiliated companies. This rule may have acted as a barrier for companies when seeking corporate restructuring based on free negotiations. Therefore, the revised Enforcement Decree will remove the calculation method for merger prices for M&As taking place between nonaffiliated business entities, which will also help to enhance regulatory consistency with global standards.

Second, the revised Enforcement Decree will bring about improvements to the external evaluation system by obligating companies to go through an external evaluation process when M&As take place between nonaffiliated business entities. For M&As between affiliated entities, companies will need to obtain consent from auditors (or audit committees) when selecting an external evaluation agency. In addition, the revised rules establish a code of conduct on quality management for external evaluation agencies to guarantee the maintenance of autonomy, objectivity, and fairness in performing functions related to M&As and address issues related to conflicts of interest. The revised Enforcement Decree will also require evaluation results to be publicly disclosed and bar external evaluation agencies from being selected to perform external evaluation if they had been involved in deciding a merger price for the same company.

Third, the revised rules will strengthen disclosure duties on M&As. Companies will be required to disclose written statements about their board of directors’ meetings with details regarding the condition of the M&A deal, such as the purpose of merger, its anticipated effect, merger price and ratio, as well as any dissenting opinion from board members.

The revised rules will go into effect from the day of promulgation, which is expected to be November 26.

The FSC will continue to seek regulatory reforms in the areas of corporate M&As and split-offs to strengthen protection of general shareholders.

* Please refer to the attached PDF for details.