South Korea passes fair-value merger framework

South Korea’s National Assembly passed an amendment to the Financial Investment Services and Capital Markets Act on 20 August, replacing market-value pricing with a fair-value approach for specified listed-company transactions.

The Financial Services Commission’s official English release describes an Assembly-approved bill, not a rule already in force. The FSC says the amendment will be promulgated after the required internal approval processes and will take effect three months later. The release does not identify a promulgation date.

The Assembly vote changes the valuation framework

Under the current framework, mergers between listed companies and affiliates use a market-value approach. The amendment requires covered transaction values to be based on fair value, taking share price, asset value and earnings value into account.

The scope covers mergers, spin-offs or split-and-merger transactions, acquisitions or transfers of a significant business or asset, and comprehensive share exchanges or transfers. The FSC groups these as ‘Subject M&A Transactions’.

The fair-value approach also applies to the purchase price for dissenting shareholders who exercise appraisal rights. The release therefore extends the valuation change to both covered restructurings and the payment available to an eligible objecting shareholder.

The amendment identifies valuation factors rather than a single formula for every transaction. The release does not provide a universal valuation method, promulgation date or text for the subordinate rules. It says the FSC will update subordinate statutes for the institutional changes, without describing those updates as an exhaustive list of remaining implementation steps.

Governance records move with the valuation change

The board of a listed company must prepare and disclose a written opinion addressing the transaction’s purpose, expected effect and price appropriateness. The company must also obtain an external appraiser’s evaluation of matters including transaction value and the appropriateness of the terms.

For an affiliate transaction, the listed company must disclose conflicts of interest or specific relationships between its specially related parties and the counterparty. These are requirements under the amendment, not a complete implementation checklist.

The records serve different functions. The board opinion documents the company’s purpose, expected effect and pricing judgment, while the external appraisal evaluates transaction value and terms. Affiliate disclosures identify specified relationships relevant to the transaction. The FSC says the measures are intended to reduce information asymmetry and help minority shareholders assess whether the process and price are appropriate.

The Assembly passage is the procedural turn: the valuation basis has been approved, but the amendment is not yet effective. The commencement sequence now depends on internal approvals, promulgation, a three-month period after promulgation and the FSC’s subordinate-statute updates.

The official release does not instruct companies to take a particular preparatory step before those events. The records to monitor are the promulgation notice, the three-month commencement period and the FSC’s subordinate-statute updates. The release identifies no further scheduled docket or implementation event.