Chapter 12: Issuance of New Shares as a Defensive Mechanism Against Hostile Takeover
12. Issuance of new shares as a takeover defense and countermeasures Sang Gon Kim I. INTRODUCTION In a hostile takeover situation, the most important issue for both the bidder and target is securing friendly shares. This is because, in order for a hostile takeover to succeed, the bidder’s designees must be elected as the directors of the target and such election is decided by votes at the meeting of shareholders. Generally speaking, there are three ways of securing friendly shares in a hostile takeover situation: (1) proxy contest, (2) sale of treasury shares to friendly shareholders and (3) issuance of new shares to friendly shareholders. Proxy contests in listed companies are regulated by the Financial Investment Services and Capital Markets Act (“FSCMA”).1 There are numerous legal problems regarding the methods for soliciting proxies and for validating power of attorneys at meetings of shareholders. Furthermore, there still remain concerns of proxy contests being handled in favor of existing shareholders who have the power to call meetings of shareholders.2 Regarding the sale of treasury shares and issuance of new shares, since they are subject to approval of the target’s board, in practice they are used The Securities and Exchange Act (“SEA”), which was the relevant law, was abolished with the promulgation of the FSCMA on February 4, 2009. The special provisions under the SEA relating to listed companies have been incorporated in the Commercial Code and the rest have been incorporated in the FSCMA. As such, certain provisions under the abolished...
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