Discussion is intensifying in South Korea over institutionalizing bear hugs as a means of overcoming low PBRs. A bill has been submitted to the National Assembly to strengthen board disclosure requirements when a takeover bid is received, and specific applications and rules are being discussed.
Institutionalizing bear hugs is being discussed as a means of addressing the persistently low price-to-book ratios (PBRs) of companies listed on South Korea’s KOSPI. A seminar highlighted the need to increase awareness of the impact of takeover bids on the market and the accountability of boards of directors.
The bill would require the boards of listed companies to disclose the receipt of, their review of, and the reasons for their decisions regarding a tender offer that could have a material impact on shareholder value. Under the current system, companies decide independently whether to express an opinion for or against a bid.
Seminar participants pointed out that the disclosure obligation should cover not only direct takeover bids but also bids for listed companies in which the acquirer holds shares. Cases in which a board’s silence became an issue in actual transactions were also cited.
Discussions of the market impact called for greater detail in enforcement ordinances, including the current level of administrative fines and the criteria for a bona fide bid. Participants also discussed shortcomings in the institutional design and the possibility of applying practices modeled on Japanese cases.