Legislation and jurisdictionRelevant 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. Additional legal authority is found in the Enforcement Decree promulgated pursuant to the MRFTA, as well as the guidelines and standards issued pursuant thereto. Enforcement of the MRFTA rests with the Korea Fair Trade Commission (KFTC), an administrative body established under the jurisdiction of the prime minister that, as part of its work, sets standards and issues numerous notices and guidelines regarding its interpretation and implementation of the MRFTA.Scope of legislation
What kinds of mergers are caught?
Specifically, the following transactions are considered as a business combination that must be reported to the KFTC pursuant to article 12 of the MRFTA subject to the jurisdictional thresholds (see question 5):
- acquisition of 20 per cent (15 per cent in the case of domestic listed companies) or more of the shares of the target company;
- acquisition of additional shares by the shareholder who already owns the shares of the target company in the ratio set forth above to become the largest shareholder;
- participation in the establishment of a new joint venture company as the largest shareholder;
- acquisition of all or a principal portion of the business or fixed assets of the target company;
- merger with another company; and
- interlocking directorate; that is, occupation by a director, an officer or an employee of the acquiring company of a position as a registered director of the target company, while such person maintains his or her position in the acquiring company (except for an interlocking directorate between affiliated companies).
What types of joint ventures are caught?
The establishment of a new joint venture company will be subject to the merger control rules under the MRFTA if the participants meet the filing requirements.
Is there a definition of ‘control’ and are minority and other interests less than control caught?
Control, in itself, is not one of the factors determining whether a particular business combination is subject to the reporting obligation. There are cases where a business combination may still be subject to the reporting obligations even if the acquiring party cannot control the target company after the business combination, as long as the acquiring party acquires 20 per cent (15 per cent when the target company is a domestic listed company) or more of shares of the target company. Thus, minority and other interests less than control may be caught where such a transaction meets the filing thresholds.
The concept of control is important when the KFTC reviews the business combination for any anticompetitive effect. That is, if the business combination does not give rise to the acquiring party’s control of the target company, such a business combination is generally presumed to have no anticompetitive effect by the KFTC.
In the case of stock acquisition and participation in the establishment of a new company, ownership ratio of 50 per cent or more will be regarded as control. In addition, even though 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 may wield substantial influence on the general management of the target company considering various factors, including interlocking directorate, degree of diversion in shares, relationship among shareholders and transactional 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 total directors of the target company, or one or more of the interlocking directors is appointed as a representative director who may wield substantial influence on the general management of the target company. Meanwhile, control is always recognised in cases of merger and business transfer.
In addition, the KFTC’s Merger Review Guidelines, which took effect on 28 December 2011, introduce a concept of ‘joint control’. That is, even though the acquiring party cannot exercise sole control over the target company, if it has the ability to exert a material influence over the target company jointly with a co-acquiring company or the incumbent shareholding company, the acquiring party is deemed to have control over the target company. According to the KFTC’s Merger Review Guidelines, the KFTC identifies a joint control, weighing various factors including without limitation 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?
Starting from 19 October 2017, the business combinations set forth in question 2 that trigger a reporting requirement to the KFTC are caught within the scope of the MRFTA where one of the parties in the business combination (including worldwide affiliated companies both before and after the business combination) has total assets or annual turnover in the amount of 300 billion won (2 trillion won in the case of interlocking directorate) or more and the other (including worldwide affiliated companies both before and after the business combination) in the amount of 30 billion won or more. There is no reporting requirement if any of the parties involved, together with its affiliates, has total assets and annual turnover less than 30 billion won.
When the KFTC deems that a violation of the provisions of the MRFTA has potentially been committed, the KFTC may conduct the necessary investigation by its own authority even if the business combination does not meet the jurisdictional thresholds.
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 above-mentioned requirements. Notification may be pre-closing or post-closing, depending on the type of business combination and amount of respective parties’ total assets or turnover. As explained in question 9, the parties can opt to make a voluntary request for a review of the transaction even before a triggering event takes place.
However, there are some exceptions to the filing requirements according to the MRFTA. For example, if the company owns the stocks of the investment company under the Financial Investment Services and Capital Markets Act, the company shall not be subject to notifying the business combination. The obligation to notify shall not apply if the head of a central administrative agency concerned has consulted in advance with the KFTC regarding the business combination under the provisions of a different legislation.
Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?
Under the Enforcement Decree promulgated pursuant to the MRFTA, foreign-to-foreign mergers must be notified if the local nexus requirement is met in addition to the requirements in question 5. The local nexus requirement is that both of the foreign parties, together with their worldwide affiliates both before and after the business combination, should respectively have an annual turnover within Korea of 30 billion won or more. If only the target company is foreign, and the acquiring party is domestic, the foreign target company should 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 case and the local nexus requirement does not apply. In the case of the participation in the establishment of a joint venture company to be located in Korea, the local nexus requirement does not apply, even if the companies participating in the establishment of the joint venture are foreign companies.
Are there also rules on foreign investment, special sectors or other relevant approvals?
In principle, business combinations notification should be filed with the KFTC. However, the relevant sector regulators cooperative with the KFTC may have the authority to review and approve certain types of business combinations as follows:
- Ministry of Science, ICT and Future Planning (pursuant to the Telecommunications Business Act);
- Financial Supervisory Commission (pursuant to the Act on the Structural Improvement of the Financial Industry);
- Financial Supervisory Commission (pursuant to the Financial Holding Companies Act); and
- Ministry of Science, ICT and Future Planning and the Korea Communications Commission (pursuant to the Broadcasting Act).
In the aforementioned cases, the relevant government ministries may consult with the KFTC in regard to the anticompetitive nature of the transaction.
Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
In principle, within 30 days after the consummation of the underlying transactions (such as a merger or the acquisition of shares), the acquiring party must report such transactions to the KFTC. If a large company (with total assets or annual turnover of 2 trillion won or more on a consolidated basis) is involved in the business combination (except the interlocking directorate), the pre-merger notification must be filed any time after the date of signing the agreement and before the closing date. Furthermore, in a pre-merger notification case, the acquiring company may not acquire the new shares or complete the transfer of the business, nor may it register the business combination pending the KFTC’s review. The reporting company may, however, voluntarily request the KFTC to conduct a prior review of the transaction in question even before entering into the agreement.
The MRFTA provides that if a reportable merger is not notified, the KFTC may impose an administrative fine of up to 100 million won upon those companies that failed to file. The KFTC imposed administrative fines of 327 million won in total on 25 cases that failed to file business combination reports in 2018.
Which parties are responsible for filing and are filing fees required?
The acquiring company is responsible for reporting the business combination to the KFTC. In the case of the establishment of a joint venture company, the party who becomes the largest shareholder is responsible for filing. No filing fees are required in Korea.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
Taking effect from 22 June 2012, all notifications (both pre-merger and post-merger notifications) are subject to a 30-day waiting period after the filing date. In addition, the waiting period may be extended by up to 90 days where the KFTC deems it necessary. Prior to receiving a clearance from the KFTC, consummation of the business combination such as the transfer of stocks, registration of ownership and full payment of the purchase price is prohibited.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
The KFTC may file actions against companies that close their transactions before clearance. In the case of a merger or establishment of a new joint venture prior to clearance, the KFTC may file a lawsuit to nullify the consummation of such business combination. In practice, the KFTC imposes an administrative fine of up to 100 million won on the company responsible for filing. This sanction is enforced without fail as long as the violation is detected.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
The sanctions are also applied in cases involving closing before clearance in foreign-to-foreign mergers. The KFTC announced that they imposed sanctions on five foreign companies in 2012 for violation of the merger control rules (failure to report, delay in report as well as consummation before closing). The latest official data has not been opened to the public.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
Because a foreign-to-foreign merger is also subject to a filing requirement, the KFTC will investigate whether the merger will have any anticompetitive impact on the relevant markets in Korea. In this regard, such solutions as a local ‘hold-separate’ arrangement in exchange with closing before clearance in a foreign-to-foreign merger have never been recognised in Korea.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
In the case of public takeover bids, the notification must be filed within 30 days of the date on which the acquisition of shares takes place even if a large company is involved in the transaction.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
The reporting party must provide the KFTC with sufficient information to allow the KFTC to review the underlying transactions. Full details of transactions are required, and various forms must be completed and submitted together with supporting documents. The KFTC provides a list of necessary documentation relating to the proposed transaction to enable it to determine whether there will be any anticompetitive impact on the market if it is completed. Under this general rule, data or information on the financial statements of the parties, names of the shareholders of the parties, financial statements of affiliated companies (including organisation charts, etc), as well as market information in the relevant sector are required. If the KFTC deems it necessary, it may request further data or information. If the KFTC officer discovers the provided information is not correct or necessary information is missing, he or she may issue a request for supplementary information. In this case, the clock stops on the date the request is issued and restarts once the requested information is received.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
Once it has received the report, accompanied by relevant documents containing information relating to the proposed transaction, the KFTC has 30 days (subject to a 90-day extension) to deliver its determination. During this time, the report is circulated internally and officers handling the case are required to investigate the possibility of an anticompetitive effect on the market. If there is any material anticompetitive impact on the market arising from the business combination, the transactions may not receive clearance.
What is the statutory timetable for clearance? Can it be speeded up?
After submission of the filing to the KFTC, the KFTC must, within 30 days, issue its decision on whether to grant clearance under the MRFTA. The 30-day period may, at the discretion of the KFTC, be shortened or extended by up to 90 days. Where such extensions are required, common reasons include the complexity of the potential transaction and the KFTC requesting additional information (whether owing to the incomplete nature of the information filed with the KFTC in the initial report or because the KFTC deems that the complexity of its investigation requires further data to enable it to reach a determination based on sufficient research on the question of clearance). In this case, the period required for submitting supplementary documents to the KFTC shall not be included in the review period. There is no formal mechanism for accelerating the review process, even though the KFTC may do so at its discretion.
Substantive assessmentSubstantive test
What is the substantive test for clearance?
The substantive test for clearance has no clear contours, but the essence of the test is the question of whether a proposed business combination has an anticompetitive effect on the relevant markets. In this regard, the definition of the relevant markets and the market concentration after the business combination are important starting points in determining whether there is any such effect. If the combined market share of the parties meets all the elements stated below, the business combination is presumed to have an anticompetitive effect on the relevant market:
- whether the combined market share of the company resulting from the business combination in question results in monopoly status. The test for monopoly status is whether the market share of a single company is 50 per cent or more in the relevant market or the aggregate market share of three companies or fewer is 75 per cent or more in the relevant market;
- whether the aggregated market share of the combined company is the largest in the relevant market; and
- whether the aggregated market share of the combined company exceeds that of the company holding the second-largest market share by not less than 25 per cent of the combined market share of the parties.
Other than the market share, factors to be comprehensively considered include unilateral anticompetitive effect, coordinated anticompetitive effect, level of foreign competition, possibility of new entry and existence of similar products and neighbouring markets.
A business combination, which is an otherwise prescribed one, can be permitted when the acquired party is a ‘failing company’. According to the MRFTA, an allegedly failing company can qualify for the failing company exemption if the company meets the statutory test including, without limitation, experiencing capital erosion for a substantial period.
Is there a special substantive test for joint ventures?
No. Normal review procedures for the business combination would also apply to joint ventures. However, some joint ventures formed by competitors in the relevant market may be considered as falling within one of the unfair collusive activities under the MRFTA. The Merger Review Guidelines also require the KFTC to take into consideration the possibility of collusion by competitors.Theories of harm
What are the ‘theories of harm’ that the authorities will investigate?
Generally, the KFTC may consider various theories of harm depending upon the nature of the transaction involved. In most cases, unilateral and coordinated effects because of the business combination in question is one of the key considerations in the review of a horizontal merger. For vertical merger, vertical foreclosure and coordinated effects are considered. For conglomerate merger, potential harm to competition, exclusion of competitors, and raising entry barriers to market are considered. Along with the aforementioned, other factors may also be considered depending on the transaction.Non-competition issues
To what extent are non-competition issues relevant in the review process?
Certain exemptions are available notwithstanding the fact that a particular transaction may appear to fall within the definition of activity that substantially restrains competition in a specific business area. Thus, the MRFTA provides some exceptions in cases: where efficiency-enhancing effects, which are deemed difficult to achieve without the contemplated merger, outweigh potential adverse effects of restricting competition; or where the merger involves a failing company whose total equity has been less than its paid-in capital on the balance sheet for a considerable period, and whose revitalisation is therefore deemed impossible without the business combination in question, and which at the same time meets the conditions set forth under the Enforcement Decree to the MRFTA. Conditions set forth under the Enforcement Decree cover situations in which it is difficult to continue to use the company’s production facilities in the relevant market without a merger and it is difficult to form a business combination that is less restrictive of competition than the contemplated one.
In addition, in the review of efficiency-enhancing effects, factors such as increase of employment, economic development of non-metropolitan areas, stable provision of energy and improvement of environmental pollution should be comprehensively considered.Economic efficiencies
To what extent does the authority take into account economic efficiencies in the review process?
Economic efficiency is one of the two exceptions under which the KFTC can allow merger transactions even though they result in an anticompetitive effect to some degree. In Korea, the efficiency argument is often presented, but has been accepted only in a few cases.
When considering the efficiency exception, the KFTC normally looks into the issue of whether a merger transaction will result in economies of scale, cost reduction, contribution to employment, and regional economic development, etc. In addition, for an efficiency argument to be successful, not only should the claimed economic efficiency be merger-specific (ie, the claimed economic efficiency may not be achieved through any measures other than the business combination in question), but also such merger transaction must be the last resort (ie, there must be no substitute measures that could be used to achieve the same result).
Remedies and ancillary restraintsRegulatory powers
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
The KFTC may issue corrective orders on parties of a business combination that causes an anticompetitive effect in the relevant market. Such orders include disposition of all or part of the shares acquired, transfer of business, etc. If the parties do not comply with the corrective measures, the KFTC may impose coercive fines for implementation, which may be imposed based on the number of days of non-compliance until the parties effectively comply with the corrective measures.
In the Merger Remedy Guidelines, the KFTC makes it clear that, in principle, it will consider structural remedies first and that behavioural remedies may also be imposed to support the structural remedies.Remedies and conditions
Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?
Yes. The KFTC may issue a corrective order to the extent that such order rectifies the anticompetitive effect. Such corrective orders can include prohibition of the merger, disposition of all or part of the shares acquired, resignation of an officer, transfer of business, cancellation of debt guarantees, public announcement of the fact that certain corrective measures are imposed, restriction on the types or scope of management that may produce anticompetitive effects on given business combinations, and any other corrective measures necessary to remedy the violation of law. For example, the KFTC has ordered the acquiring company to dispose of a part of its production lines to a third party in various cases.
What are the basic conditions and timing issues applicable to a divestment or other remedy?
Divestment has not been a generally imposed remedy in Korea. However, in more and more cases, the KFTC has ordered the acquiring companies to divest certain businesses or assets to third parties upon finding that the acquisition of those businesses or assets by the acquiring companies would result in a substantial market concentration and thus restrain competition in the relevant market. The types of remedy ordered by the MRFTA will depend on the degree of the anticompetitive effect of the particular transaction, the nature of the relevant market and the number of competitors, etc. Recent cases involving divestment allowed six months to one year to complete the divestment.
What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?
There have been instances where the KFTC has only imposed administrative fines against foreign companies that did not file at all or failed to file the report by the prescribed deadline. However, in 2007, there was the first corrective measure in connection with a foreign-to-foreign merger. In addition, in 2008 and 2010, while the KFTC was reviewing a foreign-to-foreign merger, the parties gave up the transaction because of the anticompetitive concerns raised by various competition authorities including the KFTC. In 2011, the KFTC imposed structural remedies on a proposed foreign-to-foreign merger in the computer hard disk drive industry. In 2013, the KFTC imposed corrective measures on two proposed foreign-to-foreign mergers in each of the semiconductor production facilities industry and TV SOC (system on chip, an integrated circuit that integrates all components of an electronic system) industry, respectively. In 2017, for a merger between two foreign chemical companies, the KFTC ordered the parties to sell an asset that one of the parties owned within six months of the closing date. Also, for a share acquisition of a foreign ocean shipping company, the KFTC ordered the parties to withdraw from a consortium and prohibited extension of the contract term with the consortium for a specific sea lane. Furthermore, in January 2018, the KFTC imposed structural remedies on a proposed foreign-to-foreign merger in the mobile semiconductor industry (including near-field communication (NFC) technology).Ancillary restrictions
In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?
The KFTC has never recognised these situations.
Involvement of other parties or authoritiesThird-party involvement and rights
Are customers and competitors involved in the review process and what rights do complainants have?
Yes, depending upon the case and the circumstances. In particular, in cases where conditions in a market could be affected by a merger, the KFTC may ask competitors or customers to provide data or information to enable it to determine whether there is any direct impact on the market that specifically relates to competition. However, there is no general procedure as regards asking the customers or competitors to provide their views on the merger. Any interested party to a merger and acquisition transaction may file its opinion with the KFTC in its review process.Publicity and confidentiality
What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?
The MRFTA provides that anyone in the KFTC who deals with confidential business information must not reveal, publish or otherwise use such information other than for the purpose of enforcing the MRFTA.Cross-border regulatory cooperation
Do the authorities cooperate with antitrust authorities in other jurisdictions?
The KFTC has played a major role in the International Competition Network for merger control issues. Furthermore, the KFTC also actively participates in many forums on competition issues in the Doha Development Agenda of the World Trade Organization and the Organisation for Economic Cooperation and Development. In addition, the KFTC has been involved in many bilateral discussions with other antitrust authorities in other jurisdictions including China, Germany, Japan, Russia and the United States.
The KFTC is also willing to cooperate with antitrust authorities in foreign jurisdictions in its anticompetitive review of a particular business combination. Especially in a foreign-to-foreign business combination, the KFTC cooperates with antitrust authorities in foreign jurisdictions that have similar anticompetitive concerns in designing effective corrective measures.
The KFTC cooperated with antitrust authorities in the United States and the European Union at the initial stage of review in the business combination case of stock acquisition of Hitachi GST by Western Digital.
Judicial reviewAvailable avenues
What are the opportunities for appeal or judicial review?
If the parties are dissatisfied with the KFTC’s original decision or disposition of its appeal, an application for judicial review may be made to the Seoul High Court. In the event that the High Court upholds the applicant’s complaint, the KFTC’s decision will be reversed according to the terms of that court order.Time frame
What is the usual time frame for appeal or judicial review?
Any party engaged in a merger and acquisition transaction may file a complaint with the KFTC or court if it is dissatisfied with a ruling or order issued by the KFTC. A complaint must be filed with the KFTC within 30 days of receipt of the decision that is being challenged. The appeal is then reviewed by other divisions of the KFTC. The review by the KFTC must be over within 60 days of receipt of the appeal. The KFTC will then issue a decision regarding the appeal. If the complainant remains dissatisfied with the results of the KFTC’s investigation and ruling, judicial review is open to them. An application to the courts for judicial review must be filed within 30 days of receipt of the KFTC’s decision on appeal. The Seoul High Court, an intermediate level court, has exclusive jurisdiction over any appeal arising from decisions of the KFTC. Also, the complainant may choose to directly file a complaint with the Seoul High Court within 30 days of receipt of the decision that is being challenged, without filing a complaint with the KFTC.
Enforcement practice and future developmentsEnforcement record
What is the recent enforcement record and what are the current enforcement concerns of the authorities?
In 2018, 702 business combinations were notified to the KFTC, 95 of which were foreign-to-foreign mergers. In the same year, the KFTC raised a significant competitive concern and imposed remedies for four cases. The KFTC imposed administrative fines on 23 cases for reporting violations under the MRFTA.Reform proposals
Are there current proposals to change the legislation?
The KTFC is contemplating an additional notification threshold based on the transaction amount for ‘unicorn’ deals. The current approach is pretty straightforward but may miss competition law control over the acquisition of highly valuable start-ups, which at the time of transaction may not have significant revenues or assets meeting the thresholds, but whose deal valuation is extremely high in anticipation of their potential importance in the markets (‘unicorn’ start-ups). Austria, Germany and the United States are a few countries that have introduced transaction-value-based thresholds. If newly adopted, the size-of-transaction test would intensify competition law enforcement in the era of the digital economy. However, this is still under consideration and open for further discussion.
On 27 February 2019, a new set of standards for reviewing mergers in R&D-intensive industries and those involving ‘big data’ was introduced in the Merger Review Guideline. The newly amended Merger Review Guideline marks one of the most significant progress in the KFTC’s announced move toward bringing ‘innovation market’ and ‘big data’ issues within its regulatory purview, and it is expected that this movement is likely to have a real impact on companies contemplating potential merger transactions in the relevant industries in terms of the level of scrutiny and review timeline.
Update and trendsKey developments of the past year
What were the key cases, decisions, judgments and policy and legislative developments of the past year?Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?
The KFTC reviewed a proposed acquisition of the global Dutch company NXP by the United States-based chipmaker Qualcomm. The merger notification was filed in May 2017. On 29 January 2018, the KFTC stipulated that Qualcomm must not acquire NXP’s standard essential patents for NFC and various system patents. Qualcomm was also prohibited from selling bundled products or changing NXP’s licensing. The KFTC ordered Qualcomm to make it possible for rival companies to function with NXP products. This decision was made on the ground that the proposed transaction would likely substantially restrain competition in the global market for cellular chipsets and the NFC.
In February 2019, the KFTC revised its Review Standard for Combination of Enterprises. The Standard regulates methods to define relevant markets and calculate market concentration, and provides criteria for determining anticompetitive effects when reviewing M&As in the innovation market. This would enable the KFTC to effectively review innovation-stifling effects that can be caused by a large company’s acquisition of its potential competitors.
Also, by providing factors to consider when analysing anticompetitive effects of M&As involving Big Data, the KFTC enhanced the consistency of review and allowed companies to have better anticipation about M&A review results.