South Korean Companies Vulnerable to Foreign Hostile Takeovers

Strategic Insights -

South Korean companies are struggling to protect themselves from foreign corporate raiders, leaving them exposed to unwanted bids. According to experts, the country's firms lack effective "shark repellents" to deter hostile takeovers. The vulnerability was highlighted by the ongoing proxy battle at KT&G, South Korea's largest tobacco company, which has been targeted by U.S. billionaire investor Carl Icahn and his partners. As KT&G's largest shareholder, the Industrial Bank of Korea has a 5.69% stake, while Franklin Mutual Advisers, a U.S.-based investment group, holds an 8.29% stake, making them the single-largest shareholder. The situation has raised concerns about the potential for other companies, such as steel giant POSCO and KT Corp., to fall prey to foreign buyout funds.

Key Takeaways:

  • South Korean companies lack effective measures to deter hostile takeovers, making them vulnerable to foreign corporate raiders.
  • KT&G, the country's largest tobacco company, is facing a proxy battle with U.S. billionaire investor Carl Icahn and his partners over managerial control.
  • The foreign buyout funds hold a combined 6.72% stake in KT&G and are pushing for changes to the company's management, including naming three representatives to the 12-member board.
  • The government has been criticized for removing anti-takeover mechanisms in the late 1990s, including a rule that kept an investor from buying more than 25% stake in a company unless they purchased more than 50% stake.
  • South Korea does not have measures such as the "poison pill," which makes takeovers more expensive for raiders.
  • The Industrial Bank of Korea has a 5.69% stake in KT&G, while Franklin Mutual Advisers, a U.S.-based investment group, holds an 8.29% stake, making them the single-largest shareholder.
  • Other companies, such as POSCO and KT Corp., may be at risk of falling prey to foreign buyout funds.

Statistics:

  • 6.72%: The combined stake in KT&G held by Carl Icahn and his partners.
  • 60,000 won (US$61.5): The price at which Icahn and his partners offered to buy KT&G.
  • 5.69%: The stake in KT&G held by the Industrial Bank of Korea.
  • 8.29%: The stake in KT&G held by Franklin Mutual Advisers, the single-largest shareholder.
  • 25%: The amount of stake that can be bought by an investor without triggering a change in ownership.
  • 50%: The amount of stake that must be purchased by an investor to trigger a change in ownership.

Sources:

  • Lee Kyung-sang, researcher at the Korean Chamber of Commerce & Industry (KCCI)
  • Kim Joo-tae, researcher at the Federation of Korean Industries
  • Kang Chul-kyu, head of the Fair Trade Commission
  • Yonhap news agency
  • Wall Street Journal
  • Asia Pulse
  • Korea Times