The article discusses the necessity of mandatory disclosure by boards of directors regarding acquisition proposals to safeguard the interests of shareholders in the context of South Korean undervalued companies.
The South Korean stock market is experiencing heightened expectations with the Kospi index surpassing 6000, marking the onset of the 'Korea Premium era'. Despite this optimism, a significant portion of listed companies, about seven out of ten, still possess a price-to-book ratio (PBR) of less than one, indicating that their market capitalization is lower than their book value. This undervaluation necessitates a robust framework for mergers and acquisitions (M&A). It has been suggested that regulatory changes are required to mandate that boards of directors publicly disclose M&A proposals and evaluate them in favor of all shareholders, rather than prioritizing the interests of major shareholders alone. This approach aligns with recent amendments to corporate law that emphasize the fiduciary duties of directors towards shareholders.
During a seminar held by the Korean Corporate Governance Forum, former lawmaker Lee Yong-woo highlighted that while the Korean stock market has seen a substantial increase, problems persist with undervalued companies. He noted that approximately 69% of listed firms are trading at a PBR below one, with 40% even below 0.5. The systemic issue leading to this undervaluation stems from companies being allowed to remain listed despite poor performance and M&A transactions primarily benefiting controlling shareholders, leaving general shareholders at a disadvantage. This lack of mandatory disclosure regarding acquisition offers undermines efforts to address the undervaluation of these companies.
Lee argues that in developed countries like the United States and Japan, when private equity firms or competitors present serious acquisition proposals for undervalued companies, boards are compelled to assess these offers from the perspective of all shareholders. Implementing similar disclosure regulations in South Korea would likely improve the governance of M&A transactions, ensuring that all shareholders are considered and potentially revitalizing the market for undervalued firms. Such reforms could play a crucial role in changing the dynamics of corporate mergers and acquisitions in the rapidly evolving Korean economy.
