[Edaily Marketin Song Seung-Hyeon Reporter] With reports that the ruling and opposition parties have reached a tentative agreement on the “mandatory tender offer system”—which grants minority shareholders the opportunity to sell their shares at the same price during a management buyout—the system appears to be on the verge of being institutionalized. This is expected to fundamentally change the way private equity funds (PEFs) approach acquisitions of publicly listed companies.

According to the National Assembly’s Political Affairs Committee on the 9th, the Financial Services Commission and lawmakers from both the ruling and opposition parties reportedly agreed to limit the scope of stock disposal orders issued for violations of the mandatory tender offer system to “shares acquired in excess of 25%.” Previously, on the 2nd, the Subcommittee on Bill Review reached a consensus to set the threshold for mandatory tender offers at “50% plus one share or more.” With these two key elements—the volume of shares subject to the tender offer and the level of penalties—now settled, the process appears to be gaining momentum.

Calls for the introduction of a mandatory tender offer system stem from the long-standing practice of controlling shareholders monopolizing the control premium. In 2021, Han & Company agreed to acquire a 53.08% stake in Namyang Dairy Products for 820,000 won per share—more than double the stock price at the time of the contract (385,500 won). Hanssem, acquired by the IMM PE consortium that same year, was also purchased at around 220,000 won per share—double the closing price on the day before the announcement (117,500 won). Hanssem’s stock price subsequently fell to the 40,000-won range, sparking backlash from minority shareholders.

In contrast, in 2023, the UCK-MBK Partners consortium conducted a tender offer for Osstem Implant, purchasing minority shareholders’ stakes at 190,000 won per share—the same price paid to the largest shareholder. While this approach was unusual at the time, it will effectively become standard practice once the mandatory tender offer system is introduced.

The mandatory tender offer system is viewed as a mechanism that could fundamentally transform the mergers and acquisitions (M&A) market. The most tangible change for acquirers will be the financial burden. Transactions that used to conclude after acquiring the largest shareholder’s stake—approximately 30%—will now require securing a majority by including shares tendered by remaining shareholders. This effectively doubles the number of shares that must be purchased.

Private equity funds (PEFs) face even greater constraints. Domestic limited partners (LPs), such as the National Pension Service, often limit individual investments to no more than 20% of a fund’s total committed capital. This implies that only asset management firms managing funds worth more than five times the target company’s market capitalization can realistically seek control of a listed company. The requirement to deposit tender offer funds in advance also poses a burden. The structure of acquisition financing and the composition of financial investors (FIs) have emerged as key variables determining the success or failure of a deal.

From the perspective of sellers who must share the premium, there is also the possibility that the actual proceeds from the sale could decrease. Some observers note that with a cap on the total acquisition price, if the number of shares to be acquired increases, the price per share will inevitably drop. Consequently, there is also analysis suggesting that controlling shareholders may delay sales, thereby reducing the number of companies available for acquisition. Conversely, as the burden of acquiring large blocks of existing shares grows, there is a forecast that activist strategies—such as securing a minority stake and then demanding management improvements—will gain traction.

The area most directly affected is PEF-led delisting transactions. Companies that underwent voluntary delisting procedures through public tender offers in 2024 include Ssangyong C&I, Lock&Lock, ConnectWave, J-Sys Medical, and BusinessOn—a significant increase from the two cases each in 2021 and 2022. Lock&Lock, for instance, saw Affinity Equity Partners secure an 89% stake through two tender offers, after which the remaining shareholders were bought out via a comprehensive stock swap.

The market appears somewhat relieved that, alongside this easing of restrictions, the volume of shares subject to tender offers has been scaled back from the original proposal. While the original proposal allowed for a disposal order to be issued on the entire acquired stake in the event of procedural violations, narrowing this to only the portion exceeding 25% ensures that, even in the worst-case scenario, a minimum level of management control will be preserved. The inclusion of an exemption clause—which deems the obligation fulfilled even if the target volume is not met due to insufficient subscriptions—is also highly significant from a practical standpoint. Without this clause, the success of the tender offer would become a precondition for closing the deal.

The remaining variables are the trigger conditions and the purchase price. There is a divide over whether the obligation should be imposed simply for “acquiring 25% or more” or limited to cases where “acquiring 25% or more results in becoming the largest shareholder.” If the former is adopted, the obligation would also apply to a second-largest shareholder who has no intention of acquiring management control but is expanding their stake. If the purchase price is set at the highest price over the past year, the upper limit of the acquisition cost would rise accordingly. The Political Affairs Committee plans to hold a subcommittee meeting on the 15th to discuss these issues as a priority.

In response, Kim Mok-hong, an attorney at Pacific Law Firm, advised, “Discussions on the introduction of the mandatory tender offer system are progressing rapidly, and the legislative process is expected to move forward swiftly.” He added, “Depending on the specific details of the mandatory tender offer system, the impact on M&A is likely to be significant, so it is necessary to closely monitor the legislative process going forward.”