Foreign M&A Bids to Come Under Tighter Scrutiny
Foreign M&A Bids to Come Under Tighter Scrutiny
By Yoon Ja-young
Staff Reporter
The government is working on a presidential decree to restrict foreign investors’ bids to take over companies that are important to the economy amid rising pressure from politicians.
Lawmakers have demanded that a Korean version of the U.S. Exon-Florio Act should be adopted to block M&A bids that could harm national interest. The U.S. Congress approved the bill in 1988 amid concerns over acquisition of a U.S. semiconductor producer by a Japanese company. The statute grants the authority to suspend or prohibit proposed or pending foreign acquisitions, mergers, or takeovers which threaten to harm national security.
While moving to introduce legal grounds to limit unwanted foreign takeovers of strategically-important domestic firms, the Ministry of Finance and Economy is attempting to make sure that such rules do not have a negative effect on attracting foreign direct investment (FDI).
Korea already has provisions restricting foreign investment in crucial sectors such as defense in its Foreign Investment Promotion Act and others, but doesn’t have effective protection measures.
“A foreign investors’ stake in telecom entities is limited to 49 percent, for example, but a hostile M&A bid has nothing to do with how many shares are held,” said Kim Joo-tae, a senior researcher at the Federation of Korean Industries.
A number of lawmakers have submitted bills to strengthen protective measures, amid growing concern that crucial businesses such as Samsung Electronics and POSCO could be taken over by foreigners.
After seeing businesses being taken over by foreign investors at cheap prices after the Asian financial crisis in 1997, Korean firms and voters have been reacting sensitively to such bids.
The presidential decree would require foreign investors to get approval from a government committee if they wish to buy a Korean business deemed crucial to the national interest.
“We are going to negotiate with the National Assembly _ we do not want to strengthen the law but rather try to incorporate their concerns in a presidential decree,” Finance and Economy Minister Kwon O-kyu said in an interview with The Financial Times, reflecting the ministry’s reluctance regarding the act. It has feared that too much regulation on M&As could hamper FDI into the country.
Businesses and politicians, however, are pressuring the government. “The United States attracts most FDI despite the Exon-Florio Act. We don’t mean closing the door. We just want a guard to inspect suspicious visitor,” Kim said. He said the United States, Japan, and China all recently strengthened protection on crucial industries.