The Korea Herald reports on the possible introduction of ‘poison pill’ legislation, which could be in effect by the second half of 2011.
‘Poison pill’ may be implemented next year
A “poison pill” system – aimed at helping companies protect themselves from hostile takeover bids – could go into effect by the second half of next year.
The Justice Ministry will introduce a revision bill concerning the protective system at a Cabinet meeting today, officials said yesterday (Monday).
If passed at the meeting, the bill is expected to be introduced during the National Assembly’s regular session to begin in September. Should it pass the Assembly, the system would be implemented in the latter half of next year following its promulgation.
Under the system, when a company faces a hostile takeover, existing shareholders can purchase new stocks at a preset below-market price, which would make it difficult for a hostile acquirer to secure enough shares to take over the company.
The introduction of the system has been viewed by the local business circles as crucial to ensuring that companies focus on business activities and long-term growth without concerns about their managerial rights.
Under the bill, with approval from a company’s board of directors, purchasing rights for new stocks will be given to shareholders at no cost.Opponents argue that the system would only help consolidate chaebol families’ control of business affiliates at the cost of corporate governance and the interests of minor investors. They also contend the system might even hamper the inflow of foreign capital.
To prevent the possible abuse of the system, the company can restrict some shareholders – seeking to obtain inordinate amounts of stocks to influence key management decisions – from exercising the purchasing rights, according to the bill.
The bill also stipulates that purchasing rights will only be granted to shareholders to prevent management from abusing the system in transferring management rights.
Under the bill, acquirers and other shareholders will be allowed to apply for a court injunction to nullify the decision to deploy poison pill measures to avoid the cases in which normal takeovers are blocked.
Update: Cabinet approves revision on ‘Poison Pill’ legislation
Yonhap news, in the article ‘S. Korea to adopt ‘poison pill’ system against hostile takeovers‘ reported that the Cabinet has approved a revision to the country’s commercial law that introduces a “poison pill” system aimed at protecting domestic companies from hostile takeover bids, the Justice Ministry said Tuesday.
The system, also called a shareholder rights plan, allows local companies facing a hostile takeover to issue new shares to existing stockholders at below-market prices. Similar measures have already been adopted in advanced countries like the U.S., Japan and France.
The revision will also impose strict guidelines that prevent large shareholders seeking to protect their management control from abusing the system, ministry officials said.
“The ministry will set guidelines after gathering opinions from related ministries and diverse stakeholders to establish a fair merger and acquisition practice in the market,” the ministry said in a statement, noting the bill will be submitted to parliament for approval.
(Sources: Korea Herald, Yonhap News)
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