Debate over poison pill brews in Korea amid growing hostile moves by foreign forces

2018.05.15 14:22:05 | 2018.05.15 14:24:41

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A South Korean lawmaker has proposed a law to strengthen corporate management against hostile foreign investors amid the ongoing tug-of-war between U.S. activist fund Elliott Management and Hyundai Motor Group.

Yoon Sang-jik, a lawmaker from the opposition Liberty Korea Party who is also a member of the Legislation and Judiciary Committee, said Tuesday he will submit a proposed revision to the commercial law aimed to bolster the defense mechanism of companies in the face of hostile takeovers.

“Korean companies are under threat from foreign speculative capital,” explained Yoon on his motivation behind the proposal. “We need to come up with a proper defense mechanism for our businesses to prevent further attacks.”

The proposal calls for the introduction of two policies. One is differential voting rights, attaching more voting rights to special classes of shares to allot more control to certain shareholders. The policy is currently in place in Japan and the United States.

Another is the shareholder rights plan, more commonly known as the “poison pill” strategy, which is used by companies against hostile takeovers and corporate raiders. The plan gives existing shareholders the right to purchase additional shares at a discount, diluting the bidder’s interest and raising the cost of the bid substantially.

The two policies have not been adopted in Korea as they go against the one-share-one-vote principle and face the risk of abuse of power in the hands of large shareholders. But a series of battles between domestic companies and foreign investors have triggered support for such defensive measures.

Most recently, Elliott has emerged as the biggest threat to Hyundai Motor Group’s restructuring scheme after it announced to vote against the plan and urged other shareholders to do the same ahead of the general meeting of Hyundai Mobis on May 29.

SK Group faced a similar fight in 2003 when Sovereign Asset Management pushed for a corporate governance reform at SK Corp. for more than two years. In 2006, KT&G fended off a hostile takeover bid from U.S. billionaire Carl Icahn, a move that had sparked intense debate in Korea as it was the first attempt of its kind in the country.

By Park Joon-hyung and Kim Hyo-jin

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