The method for determining merger valuations for public companies will transition from market price to fair value. This change aims to move away from a uniform arithmetic average evaluation method and instead consider various valuation factors, including a company's assets and earnings. Additionally, the process will require the board of directors to prepare review opinions and obtain external evaluations.
On September 15, the Financial Services Commission announced that from September 16 to October 6, it will seek public input on amendments to the 'Enforcement Decree of the Capital Markets and Financial Investment Business Act' and the 'Regulations on the Issuance and Disclosure of Securities.' The amendments to the Capital Markets Act were announced on September 8 and will take effect on December 9.
Under the revised law, publicly listed companies must apply fair value, which considers market price, asset value, and earnings value, when determining the value of mergers, splits, significant business asset transfers, and comprehensive stock exchanges. Asset value is calculated by dividing net assets by the total number of issued shares, while earnings value refers to a reasonably assessed value using methods such as discounted cash flow (DCF) or dividend discount model (DDM).
Previously, the valuation for mergers was based on the arithmetic average of the closing prices from one month, one week, or the most recent day prior to the contract date or board resolution date, with a possible discount or premium of up to 10%.
The price for shareholder appraisal rights was also calculated using the arithmetic average of closing prices from two months, one month, or one week prior to the board resolution date. The Financial Services Commission will remove these specific calculation methods in the upcoming regulatory amendments.
Furthermore, the board of directors will be required to draft and disclose an opinion on the purpose, expected effects, and appropriateness of the valuation for mergers, and must obtain an evaluation from an objective third party, which will also be disclosed. In cases of mergers between affiliates, additional disclosures regarding the interests between the related parties and the counterpart company will be required.
The Financial Services Commission stated, "The external evaluation criteria will expand beyond just the appropriateness of the valuation and transaction conditions to include the appropriateness of the evaluation methods used, the reasonableness of the key assumptions underlying the valuation, and any difficulties encountered in the evaluation. This will enhance the amount of information available to shareholders and investors." It emphasized that the key issue is not just the quantity of disclosed information but how well shareholders can verify and confirm the rationality of the transaction procedures and judgments.
In cases of mergers between affiliates, the securities registration statement must include details about investments, debt guarantees, concurrent positions of executives, and changes in shareholding between the related parties and the counterpart company. This aims to help shareholders and investors clearly understand the interests involved in the transaction.
If negotiations on the buyback price for shareholder appraisal rights fail, an external evaluation agency will assess the appropriateness of the buyback price, and this information must also be disclosed in the securities registration statement.
The Financial Services Commission will collect opinions on the amendments to the enforcement decree and disclosure regulations for 20 days, followed by regulatory reviews, decisions by the Securities and Futures Commission and the Financial Services Commission, legislative reviews, and decisions by the vice minister and cabinet meetings. The amendments will take effect on December 9.
* This article has been translated by AI.
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