Korea`s poison pill could scare off FDI: foreign investors

Multinational institutional investors have expressed strong opposition towards the Korean government`s plan to implement a "poison pill," or a shareholder rights plan, clause by revising trade laws.

The Ministry of Justice recently announced drafted revisions to the commercial law that would introduce a poison pill system into Korean society in aims to protect domestic companies from hostile takeover bids.

The poison pill system allows companies mired in a hostile takeover to increase shares among allies by issuing new shares to existing stockholders, as well as purchasing rights to the shareholders at below-market prices. The practice already exists in the United States, Japan and France.



Global investment bodies in a joint opinion statement highlighted the unfair nature of the system, Yonhap News reported yesterday.

"The poison pill clause would be in the name of sacrificing the rights of small shareholders and a country`s market economy and competitiveness, while the system has been used as a defensive mechanism by existing management members and related individuals," the joint statement stressed, underlining foreign investors` opposition to such a practice.

The opinion statement was signed by 23 overseas investment institutions, including pension funds, whose combined assets total more than $2.5 trillion. Some of the names include APG Investment, F&C Investment and U.K.-based pension fund Hermes Investment Management.

Corporate Korea has been a supporter of the poison pill, as industry leaders view it as a form of armor for protecting them against hostile takeovers. But opponents argue that the system would promote an advantage to owners of large companies by fortifying their influence, which could even raise the likelihood of obstructing foreign direct investments.

The joint statement underlined that Korea`s efforts to improve its negative image and build global credibility following the 1997-98 Asian financial crisis could all go up in smoke with the adoption of the poison pill system.

The opinion statement also warned that the system could raise investment risks for foreign investors in Korea, which would in the worst case scenario prompt foreign investors to seek other Asian countries with a better investor protection system and with more transparency.

"There isn`t much hostile takeover activity going on Korea for it to adopt artificial defense mechanisms," the opinion statement said, suggesting that a lack of clarity in the revised law would only raise the possibility of creating chaos in the market.

Representatives of the foreign business community in Korea, such as the European Union Chamber of Commerce, declined to share their opinion on the poison pill system.

(sohjung@heraldm.com)







By Yoo Soh-jung