[THE INVESTOR] Only 1 percent of Korean companies have set up defense mechanisms against hostile takeovers in recent years, indicating that they are still vulnerable to such threats and shows the lack of corporate governance.

Daeshin Economic Research Institute on June 19 looked into 600 listed companies and conglomerate affiliates in Korea where institutional investors or the pension fund hold more than 5 percent stake in the company. Only six of 600, or 1 percent, have established measures against hostile takeovers from July 2015 to May this year. 



They include food producer Pulmuone, an auction house Seoul Auction, semiconductor equipment manufacturer Techwing, automotive parts manufacturer Woory Corporation, among others, who have built in defense mechanisms -- such as a golden parachute -- against unwanted bidders.

However, large companies, that are usually the takeover targets of foreign hedge funds, have not invested in the measure.

“Ever since the Eliott-Samsung incident, antitakeover provisions have become a major issue here. However, due to a backlash from foreign investors and minority shareholders, the companies weren’t able to establish institutionalized measures.”

Share repurchase, where a company buys back its own stocks from the market, is another well-known takeover deterrent. But last year, the largest shareholders from only 39 out of 249 listed conglomerates affiliates were able to buyback the shares. “It costs a lot to buyback the shares, so the measure is only for few companies with enough cash reserves,” Ahn said.

While the introduction of defense measures by companies was debated at the National Assembly in the past, it hasn’t passed the floor due to controversy over possible side effects. Civic groups and the opposition parties have strongly opposed the introduction, saying the measure only benefits chaebol owners who wish to tighten their grip on management.

In light of this, industry watchers are concerned that corporate Korea is becoming a growing target for hostile takeovers. “It’s almost impossible to anticipate the decisions of foreign hedge funds,” said an official in investment banking. “The corporate governance problems with conglomerates are still there and the system hasn’t changed much. So another ‘Elliott’ incident is inevitable.”


By Ahn Sung-mi (sahn@heraldcorp.com)