Korean Companies Vulnerable to Hostile Takeovers

According to a survey, a third of Korean companies listed in the stock market are exposed to hostile mergers and acquisitions (M&As).

The Federation of Korean Industries (FKI) conducted a survey of 300 companies listed on the KOSPI and KOSDAQ markets yesterday in which 31.2 percent of respondents said that they were exposed to hostile M&As.

About 25.7 percent said that they did not have a means to defend management control. KOSDAQ companies and small-cap companies showed a strong sense of urgency about protecting their management control.

The survey also showed that most of the country’s listed companies relied on measures that require an enormous amount of cash, including an increase in the stakes of large shareholders (79.4 percent) and stock buybacks (32.3 percent) to defend their management control.

Indeed, Korean firms spent 65 trillion won from 2001 to 2006 on dividends and buybacks in the stock market, more than double the 30 trillion won they raised in the stock market for investment.

The FKI said, “While regulations over attempts to take over management control have been eased through abolition of investment ceilings for foreign investors, domestic companies are spending their management resources to defend management control as they do not have any other appropriate means to protect it,” urging, “The authorities should allow them to allocate newly issued shares to a third party, as other countries do.”

abc@donga.com