Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

The relevant legislation principally consists of the Monopoly Regulation and Fair Trade Act (MRFTA), which was first enacted in 1980. On 30 December 2021, a newly amended MRFTA took effect, which substantially overhauled the MRFTA. Among other things, it introduced a size-of-transaction test as part of the jurisdictional thresholds for mergers.

Additional legal authority is found in the Enforcement Decree promulgated pursuant to the MRFTA, as well as the guidelines and standards issued by the Korea Fair Trade Commission (KFTC). The KFTC is the regulatory authority that overseas and enforces antitrust and competition laws in Korea.

Scope of legislation

What kinds of mergers are caught?

The following types of transactions are notifiable under article 11(1) of the MRFTA, provided that they meet the jurisdictional thresholds:

  • the acquisition of 20 per cent (15 per cent in the case of a publicly listed company in Korea) or more of the voting shares of another company;
  • the acquisition of additional voting shares of another company by a shareholder who already owns 20 per cent (15 per cent in the case of a publicly listed company in Korea) or more of the voting shares of the company, which results in the shareholder becoming the largest shareholder of such company;
  • the acquisition of all or a substantial part of the business or assets of another company (provided that the business or assets are at least 5 billion won or 10 per cent of the company’s total assets);
  • the statutory merger of one company with another company;
  • the establishment of a new joint venture company; and
  • the establishment of an interlocking directorate, which refers to the arrangement where a director, an officer or an employee of a company concurrently serves as a registered director of another company (excluding cases where the interlocking directorate is between affiliated companies).

What types of joint ventures are caught?

The establishment of a new joint venture company by two or more parties will be notifiable if it meets the jurisdictional thresholds.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

Control is not one of the factors considered in determining whether a particular business combination is notifiable. There are cases where a business combination may still be notifiable even if the acquiring party does not acquire control of the target company, as long as the acquiring party acquires 20 per cent (15 per cent when the target company is a publicly listed company in Korea) or more of the shares of the target company; thus, a business combination that does not result in the acquisition of control may still be caught if a transaction meets the jurisdictional thresholds.

The concept of control is important when the KFTC reviews the business combination for any anticompetitive effect: if the business combination does not give rise to the acquiring party’s obtention of control of the target company, the business combination is generally presumed to have no anticompetitive effect.

In the case of a stock deal or the establishment of a joint venture company, an ownership ratio of 50 per cent or more will be regarded as control. In addition, even if the acquiring party’s ownership ratio in the target company is below 50 per cent, the acquiring party will be regarded as having control over the target company if the acquiring party can wield substantial influence over the general management of the target company in light of various factors, including the status of interlocking directorate, the degree of stock ownership dispersion, the relationship among shareholders and the business relationship between the acquiring party and the target company.

In the case of an interlocking directorate, control is recognised if the number of interlocking directors is one-third or more of the total number of directors of the target company, or one or more of the interlocking directors is appointed as a representative director who can wield substantial influence over the general management of the target company.

In the case of the establishment of a joint venture company, control is assumed to have been acquired if:

  • two or more of the companies participating in the establishment of a joint venture company are required to have joint control over the new joint venture company; and
  • any of the other control factors for stock deals described above is met.

 

Control is always recognised in asset deals and statutory mergers.

The KFTC’s Merger Review Guidelines introduce the concept of ‘joint control’: even if the acquiring party cannot exercise sole control over the target company, if it has the ability to exert material influence over the target company together with a co-acquiring company or an existing shareholder, the acquiring party is deemed to have control over the target company.

According to the Merger Review Guidelines, the KFTC determines whether there is joint control by considering various factors, including ownership stake, power to designate directors and officers, power to veto key business decisions, contractual commitment to jointly exercise voting rights and administrative power to operate the business.

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

General jurisdictional thresholds: size-of-person test

The general jurisdictional thresholds for notification are as follows:

  • a party (including its affiliates that are affiliates both before and after the completion of the business combination) to the business combination should have total worldwide assets or annual worldwide turnover of 300 billion won or more as of the most recent fiscal year end; and
  • the other party (including its affiliates that are affiliates both before and after the completion of the business combination) to the business combination should have total worldwide assets or annual worldwide turnover of 30 billion won or more as of the most recent fiscal year end.

 

In the case of an asset deal (ie, the acquisition of all or a substantial part of the business or assets of the target company), the same thresholds apply other than respect to the asset or business transferring company whose total assets and turnover are instead determined on a stand-alone basis without adding those of its affiliates.

 

Size-of-transaction test

The newly amended MRFTA, which took effect as of 30 December 2021, introduces a size-of-transaction test that imposes a filing obligation even if the target company’s turnover or total assets do not meet the foregoing general jurisdictional thresholds. Based on this new standard, a transaction that previously may not have been caught by the general jurisdictional thresholds will be notifiable if:

  • the transaction value exceeds 600 billion won; and
  • the target company has a ‘substantial level of activity in the Korean market’, including selling or providing products or services in the Korean market or having research and development (R&D) facilities or personnel in Korea.

 

The transaction value is calculated based on the following methodology:

 

Type of transactionTransaction value calculation methodology
Share acquisitionPurchase price of the shares + (if applicable) book value of the shares of the target company already held by the acquirers at the time of the transaction + amount of assumed liabilities
MergerValue of shares issued to target’s shareholders in consideration of the merger + (if applicable) cash consideration + amount of assumed liabilities
Business transferPurchase price + assumed liabilities
Establishment of a joint venture companyCapital contribution amount of the largest shareholder specified in the joint venture agreement

 

The ‘substantial level of activity in Korea’ of the test is met if the target either:

  • sold goods or services to at least 1 million persons in the Korean market in any month during the last three years; or
  • its R&D-related budget in Korea exceeded 30 billion won in any year during the last three years.

 

Even if the jurisdictional thresholds are not met, the KFTC may, at its own initiative, conduct a review of any business combination that it determines may potentially restrict competition in the relevant market.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

Filing with the KFTC is a mandatory requirement as long as the parties meet the relevant requirements. Notification may be pre-closing or post-closing, depending on the type of business combination and the amount of the respective parties’ total assets or turnover. The parties can opt to make a voluntary request for a preliminary review of the transaction even before a triggering event takes place.

There are some exceptions to the mandatory filing requirement. For example, if a company acquires shares of an investment company under the Financial Investment Services and Capital Markets Act, the company will not be subject to merger notification requirements under the MRFTA.

There is also no notification requirement if the head of the concerned central administrative agency has consulted in advance with the KFTC with regard to the business combination under the provisions of different legislation.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

For foreign-to-foreign mergers, in addition to the general jurisdictional thresholds, a local nexus requirement must also be satisfied to trigger the notification obligation. A foreign-to-foreign merger is deemed to satisfy the local nexus requirement if the foreign acquiring company and the foreign target company each have annual turnover in Korea of 30 billion won or more during the most recently ended fiscal year.

If only the target company is foreign, and the acquiring party is domestic, only the foreign target company needs to meet the local nexus requirement. In contrast, if only the acquiring party is foreign, and the target company is domestic, the business combination is regarded as a domestic business combination, and the local nexus requirement does not apply.

In the case of the establishment of a joint venture company in Korea, the local nexus requirement does not apply, even if the companies participating in the establishment of the joint venture company are foreign companies.

Are there also rules on foreign investment, special sectors or other relevant approvals?

In principle, all business combination notifications need to be filed with the KFTC; however, the relevant sector regulators in cooperation with the KFTC may have the authority to review and approve certain types of business combinations. The following represent some of the regulators that have such authority: