Like many other countries, South Korea has its own merger notification & competition review regimes. This means if your M&A deal involving a Korean company or business meets the merger notification thresholds prescribed in the rules of the Korean competition authority, you need to make a merger filing. And your transaction becomes subject to the authority’s competition review. Thus, it is imperative that the dealmakers should be fully advised on the Korean merger filing rules for the applicability and for any potential risks.
Korean M&A Regulatory Law and Agency
In Korea, the Monopoly Regulation and Fair Trade Act (MRFTA) regulates the M&A and other similar transactions. The MRFTA appoints the Korea Fair Trade Commission (KFTC) as the regulatory agency that is in charge of receiving the pre-merger notification and carrying out the competition review.
It is reported that Mr. Matthew Deakin, the president of the HSBC Korea, said on last Wednesday that HSBC Holdings Plc had no plan to acquire a local Korean bank for now. Last year, HSBC walked away from the deal with the Lone Star, a U.S. private equity fund, which provided HSBC the right to buy 51 percent stake of Korea Exchange Bank due to the global financial crisis and continued legal disputes surrounding the 2003 purchase of the bank by Lone Star Funds. (Here is a related previous post)
Things have changed. The Seoul Central District Court in last November ruled the purchase legal, and as the financial markets are now stabilizing. But Mr. Deakin, at the press conference which took place for the purpose of introducing the bank’s new Emerging Markets Index, said “right now, we have no interest in any acquisition of Korean banks”.
Here is a related news article.
Last week, the Korean government announced that it would initiate a reviewing process for the approval of the KEB sale soon. Interestingly enough, today it was reported also that before the government’s announcement, Lone Star Fund had sent an official letter to the Korean government regarding the government’s approval issue on the long-waited sale of Korea Exchange Bank(KEB) from Lone Star Fund to HSBC bank. Lone Star Fund and HSBC had entered into the stock purchase agreement and the deadline of the agreement is coming at the end of this July. It was reported that Lone Star Fund stated in that problematic letter that if the Korean government kept delaying the approval, the fund would file a lawsuit domestically and internationally against the Korean government for the compensation of damages by the sale’s deferment(here is a news article).
Well, someone, especially western people, can say that there would be no problem in sending a letter to the other party noticing potential legal disputes. However, it is quite unusual in Korean legal culture that a private enterprise warns the government stating otherwise it would sue the government. Of course, it is legally acceptable and in some cases, a statutory right of a private enterprise, to file a lawsuit against the government, but culturally it is not common to take this kind of open and public action to press the government hard in Korea.
By the way, as a matter of law, the fund would be permitted to file a lawsuit to a Korean court, however, the chances are that the fund would not win the case. Under Korean law, in order for the fund to win the case, the fund must prove there has been an unlawful act of the Korean government in delaying the approval. But, the approval itself is a right, not an obligation, of the government provided by the law and there have been lawsuits affecting the validity of the ownership of KEB by the fund, which have made the Korean government hold the approval procedures (more…)
Today just a few hours ago, the Seoul High Court sentenced partly not guilty to the head of U.S. private equity fund Lone Star’s South Korean operations (Lone Star Advisory Korea).
Last February Seoul Central District Court had sentenced all guilty and had detained Mr. Paul Yoo, the head of Lone Star Advisory Korea, for stock rigging and misappropriation charges. Also, the court had ordered Korea Exchange Bank and LSF-KEB Holdings SCA, a Belgium-based unit that holds Lone Star’s stake in KEB, to pay 25 billion won ($26.50 million) each in fines, saying both secured unfair profits as a result of the stock-rigging.
The defendants all had appealed and the Seoul Court today reversed and amended the lower court’s ruling, saying “as the Lone Star Fund did actually discuss a capital decrease in a meeting of the board of directors, there had been no falsehood in its reporting of possible capital decrease to the public and therefore no stock price manipulating”.
Also, the High court found not guilty in Mr. Paul Yoo’s tax evasion charge and also found not guilty in 2 out of 4 misappropriation charges against Mr. Paul Yoo. Finally, the court sentenced 2 and a half year of imprisonment to Mr. Paul Yoo, however, suspended the execution for 3 years. Mr. Paul Yoo Has been released out of prison today by the court’s decree(see the photo). (more…)
Finally the National Tax Service ruled in favor of Hana Bank in its 1.8 billion tax evasion case. On February, NTS forced Hana Bank to pay up to 1.7 trillion won ($1.8 billion) in penalty taxes for unfair corporate income tax evasion in the course of a merger with the Seoul Bank back in 2002(Here is my previous post on this case). Hana bank appealed and NTS ruled on June 6 that the merger was not a reserved merger so the bank do not need to pay the penalty. The NTS will return the 198.3 billion won Hana Bank paid (more…)
It was reported that Lone Star Fund and HSBC agreed to extend their contractual deadline for completion of HSBC’s proposed acquisition of 51.02 percent of Korea Exchange Bank(KEB) from April 30 to July 31. HSBC had entered into a contract to buy out KEB from the Lone Star last September with a provision that either side can cancel the contract unless they obtain government approval for the sale by the end of April. Currently the Korean government has not approved the deal due to ongoing lawsuits regarding Lone Star’s alleged (more…)
Today it was reported that Kookmin Bank would buy a majority stake of Bank Center Credit, the sixth-largest Kazakhstan commercial bank, worth $634 million. The deal is the largest overseas M&A by a Korean financial institution.
Kookmin bank is targeting to become a leading bank not only in Kazakhstan but also in Central Asia, which (more…)
This morning one news article got my eyes on. The news reported that Hana Bank, one of the largest bank in Korea, is expected to be forced to pay up to 1.7 trillion won ($1.8 billion) in penalty taxes for unfair corporate income tax evasion in the course of a merger with the Seoul Bank back in 2002.
According to the news, the Ministry of Finance and Economy has ruled that the merger between Hana Bank and Seoul Bank involved illegal tax evasion. The MFE regarded the merging of two Banks as a “reversed merger”, which means a company in the red, Seoul Bank, pretends to be purchasing Hana Bank, which was in the black, when in fact it was other way round. By doing so, Hana Bank, the actual acquirer, could save corporate income taxes.
Korea’s financial authority approved the merger between Hana and then-struggling Seoul in 2002. Hana Bank is objecting to MFE’s decision. Hana bank said it completed the deal based on the government’s guidelines Hana Bank also commented (more…)