President Lee Jae-myung to personally strike a balance on the mandatory buyback system
President Lee Jae-myung has personally signaled that he will set the standards for the mandatory buyback system, saying a "reasonable balance point" must be found for its ratio and method.
Background and Current Status
The mandatory buyback system requires an acquirer of a listed company to repurchase shares held by minority shareholders at a price above the market price. It was one of the key capital market reform tasks President Lee presented as a campaign pledge, aimed at preventing acquirers from seizing control without protecting minority shareholders after a takeover. The problem lies in the ratio and the method. A high buyback ratio increases the acquirer's burden and could chill the mergers and acquisitions (M&A) market itself, while a low ratio undermines the system's purpose of protecting minority shareholders. The president's use of the term "balance point" reflects his recognition of this dilemma.
Key Issues: Ratio and Method
The discussion boils down to two focal points. The first is the mandatory buyback ratio. The funding burden on acquirers varies greatly depending on whether they must buy back all outstanding shares regardless of their acquired stake, or only a certain percentage. The second is the buyback method. The pro-rata method gives all minority shareholders an equal opportunity, while the first-come, first-served method is faster to process but raises fairness concerns. The president's remarks suggest that the government has yet to settle on an option. Given the system's potentially far-reaching impact on the market, a cautious approach is seen as inevitable.
Impact on the Market
Capital markets are closely watching the system's detailed design. In Korea's M&A market, cases of acquirers seizing managerial control with no regard for minority shareholders have repeatedly occurred, and minority shareholders have often borne the losses. Once the mandatory buyback system is introduced, acquirers will have to factor in buyback funds from the start, which is expected to curb reckless takeover attempts. On the other hand, concerns are mounting that increased procedural and cost burdens could discourage foreign investors from acquiring domestic listed companies. Where the ratio is set will inevitably shape the temperature of the corporate takeover market. Behind the president's emphasis on a "reasonable balance point" lies a calculation aimed at preserving both minority shareholder protection and market vitality.
Passage of related legislation will require consultation with the National Assembly. As opposition from the rival party is expected, a process of building social consensus on the ratio and method appears essential. Given that the president has personally outlined the direction of the standards, the government is expected to present a specific numerical proposal soon. As the first test of a new governance framework for Korea's capital market, the way this system is ultimately implemented will significantly shape both takeover practices for listed companies and the level of minority shareholder protection.
