Journal of Korean Law

,PS-PXࠗࣘ@੤1.ಕ੉૑J ઱ BOZQSJOUJOH QNBD Journal of Korean Law Vol. 8, No. 2, June 2009 Law Research Institute Seoul National University ,PS-PXࠗࣘ@੤1.ಕ੉૑JJ ઱ BOZQSJOUJOH QNBD ,PS-PXࠗࣘ@੤1.ಕ੉૑JJJ ઱ BOZQSJOUJOH QNBD INFORMATION ABOUT THE JOURNAL OF KOREAN LAW The Journal of Korean Law is published twice annually, in June and December, by Law Research Institute of Seoul National University. Please address all correspondence to: Journal of Korean Law School of Law Seoul National University 599 Gwanak-ro, Gwanak-gu Seoul 151-743, Korea Phone: +82-(0)2-880-6867 FAX: +82-(0)2-876-2160 E-mail: [email protected] Homepage: http://www.snujkl.org Subscriptions. Annual subscriptions to the Journal of Korean Law are available for Ń40,000 for domestic subscribers and US$50.00 for foreign subscribers. Price includes surface shipping costs, and is subject to change without notice. Subscriptions are automatically renewed unless notification to the contrary is received. Prepayment is required. Please send payment to the address above. Checks should be made payable to Seoul National University. Copies of the Journal of Korean Law may also be purchased or subscribed for from the following: Kyobo Book Centre William S. Hein & Co., Inc. 1-1, Jongno, Jongno-gu, 1285 Main Street, Seoul 110-714, Buffalo, NY 14209-1987 Korea U.S.A. homepage: < http://www.kyobobook.co.kr > homepage: < http://www.wshein.com> Manuscripts. The Journal of Korean Law invites the submission of unsolicited manuscripts. Please address manuscripts to the Editor-in-Chief, Journal of Korean Law. Unsolicited manuscripts will be subject to review by referees. Articles of less than 10,000 words are preferred. We regret that manuscripts cannot be returned. Copyright. Authors of accepted manuscripts must transfer copyright to Seoul National University (the Journal of Korean Law). Opinions expressed are those of the contributor and do not represent the views of the Journal of Korean Law, its editors, or Seoul National University. Postmaster. Please send address changes to the Journal of Korean Law, School of Law, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul 151-743, Korea. EDITORIAL POLICY The Journal of Korean Law assumes that all authors listed in a manuscript have agreed with the following policy on submission of manuscript. 1. Except for the negotiated secondary publication, manuscript submitted to the Journal must be previously unpublished and not be under consideration for publication elsewhere. 2. All submissions should be accompanied by a cover letter and a brief abstract. All necessary contact information should also be included. The abstract should be concise, less than 200 words, and describe concisely purpose, methods, and argument of the study. Up to ten keywords should be listed at the bottom of abstract to be used as index terms. The Journal strongly encourages contributors to email their manuscripts in Microsoft Word format to [email protected]. Citations in manuscripts should appear in footnotes, not endnotes, and follow The Bluebook: A Uniform System of Citation (18th ed. 2005). The Journal also encourages the use of gender-neutral language. 3. All published manuscripts become the permanent property of Law Research Institute of Seoul National University and may not be published elsewhere without written permission. ISSN 1598 -1681 ,PS-PXࠗࣘ@੤1.ಕ੉૑JW ઱ BOZQSJOUJOH QNBD ADVISORY BOARD William P. Alford Bernard S. Black Harvard University University of Texas at Austin Jerome A. Cohen John O. Haley New York University Washington University in St. Louis Young Moo Kim Jung Hoon Lee Kim & Chang, Korea Bae, Kim & Lee, Korea Tae Hee Lee Jean Morange Lee & Ko, Korea University of Paris 2 Pantheon-Assas Woong Shik Shin Young Moo Shin Shin & Shin, Korea Shin & Kim, Korea Malcolm Smith Sang Hyun Song University of Melbourne International Criminal Court Frank K. Upham Hoil Yoon New York University Yoon & Yang, Korea Michael K. Young University of Utah EDITORIAL BOARD Editor-in-Chief Hwa-Jin Kim Seoul National University Editors Seung Wha Chang Stephen Choi Seoul National University New York University Tom Ginsburg Sang Gon Kim University of Chicago Lee & Ko, Korea Kenneth S. Korea Chang Hee Lee Dechert Silicon Valley Seoul National University Keun-Gwan Lee John Ohnesorge Seoul National University University of Wisconsin Ghyo Sun Park Joon Park Shin & Kim, Korea Seoul National University Adam C. Pritchard Chi Yong Rim University of Michigan Bae, Kim & Lee, Korea Hyun Woong Song Sunsuk Yang Evergreen Law Group, Korea Kyungpook National University Young-Tae Yang Horizon Law Group, Korea Assistant Editors Ying Liu Yu Mi Kim Seoul National University Seoul National University QNBD BOZQSJOUJOH ઱ ݾର@੤1.ಕ੉૑W-,+ Journal of Korean Law Vol. 8, No. 2, June 2009 ]CONTENTS] Information About the Journal of Korean Law iii Advisory Board / Editorial Board iv The Law and Practice of Corporate Acquisitions in Korea The Case for Market for Corporate Control in Korea 227 Hwa-Jin Kim Analysis of Freeze-outs in Korea: Quest for Legal Framework Synchronizing Transactional Efficiency and Protection of Minority Shareholders 277 Chang-Hyun Song, Byung Tae Kim, Joon-Hyuk Chung and Sang-Beom Hong Issuance of New Shares as a Takeover Defense and Countermeasures 325 Sang Gon Kim Stock Repurchase as a Defense against Hostile Takeovers 349 Hee Jeu Kang Mergers and Acquisitions Practice of Reorganizing Corporations in Korea and Its Ongoing Change 365 Sung Jun Hong Legal Status of Joint Ventures under Korean Competition Law 433 Bong-Eui Lee Comments The Challenges and Outlook of Trial by Jury in Korea 455 Junho Kim Capital Markets and Financial Investment Services Act of 2007: An Overview 477 Center for Financial Law QNBD BOZQSJOUJOH ઱ ݾର@੤1.ಕ੉૑WJ-,+ )XB+JO,JN@࢖1.ಕ੉૑ ઱ BOZQSJOUJOH QNBD Journal of Korean Law | Vol. 8, 227-276, June 2009 The Case for Market for Corporate Control in Korea* Hwa-Jin Kim** Abstract This Article offers an assessment of the preliminary evidence that the market for corporate control functions as a disciplinary mechanism for poor corporate governance in Korea. It analyzes SK Corporation’s fight against Sovereign Asset Management, contest for control over the Hyundai Group, KT&G’s fight against Carl Icahn, and LG Group and Carlyle’s proxy contest against Hanaro Telecom, together with relevant laws and regulations. These high-profile cases dramatically exemplified the role of takeovers in the improvement of the corporate governance of Korean companies, and brought about active policy discussions in respect of the market for corporate control and takeover defenses. This Article will also provide a quick overview over the provisions in draft new Korean Commercial Code related to the market for corporate control and takeover defenses, including squeeze-out, poison pills, and dual-class commons. This Article argues that as the increasing exposure of control to the market could eliminate the inefficient controlling shareholder system in Korea, the new Korean Commercial Code should strike a balance between the active market for corporate control and effective takeover defensive tactics for the benefit of all shareholders and the value of the company. I. Introduction Korea may be qualified as one of the “inefficient controlling shareholder systems” under the taxonomy proposed by Professor Ronald Gilson.1) Recent * Published simultaneously in 2009 OXFORD UNIVERSITY COMPARATIVE LAW FORUM, an Oxford University Faculty of Law official faculty publication. ** Associate Professor of Law and Business, Seoul National University School of Law; Dr. Jur. (Munich); LL. M. (Harvard). An earlier version of part of this Article previously appeared in TRANSFORMING CORPORATE GOVERNANCE IN EAST ASIA 71 (Hideki Kanda, Kon-Sik Kim & Curtis J. Milhaupt eds., Routledge, 2008). I am grateful to those who gave me comments in workshops and conferences organized by University of Tokyo School of Law, Seoul National University School of Law, University of Michigan Law School, and Supreme Court of Korea. 1) See Ronald J. Gilson, Controlling Shareholders and Corporate Governance: Complicating the Comparative Taxonomy, 119 HARV. L. REV. 1641 (2006); Ronald J. Gilson, Controlling Family Shareholders in Developing Countries: Anchoring Relational Exchange, 60 STAN. L. REV. 633 (2007). )XB+JO,JN@࢖1.ಕ੉૑ ઱ BOZQSJOUJOH QNBD 228 | Journal of Korean Law Vol. 8: 227 research shows that the average of controlling family ownership for public firms in Korea was 29.51%, compared with controlling families’ cash-flow rights of 8.42%. In the case of Samsung Group, the largest Korean conglomerate, those numbers were 13.52% and 1.14%, respectively, for public firms in the group.2) The private benefit of control is also relatively high in Korea. The value of corporate control amounts to about 34% of firm market value in Korea, as compared to about 29% in Italy, 1% in Denmark, 9% in Germany, and 2% in the United States.3) The poor corporate governance practices of some large Korean firms are responsible for the still-continuing discussions on how to abolish the “Korea discount,”4) i.e., how to eliminate or reduce agency costs in the inefficient controlling shareholder system. One of the solutions to the problem may be the increasing exposure of corporate control to the (global) market.5) This requires Korea to facilitate corporate takeovers and promote the market for corporate control. As a 2) James Jinho Chang & Hyun-Han Shin, Family Ownership and Performance in Korean Conglomerates, 15 PACIFIC-BASIN FIN. J. 329 (2007) (also reporting that the average ownership of the controlling shareholders of non-public member firms of Samsung Group was 78.43%, whereas their cash-flow rights were as low as 19.43%). See also Kee-Hong Bae et al., Tunneling or Value Added? Evidence from Mergers by Korean Business Groups, 57 J. FIN. 2695 (2002); E. Han Kim & Woochan Kim, Changes in Korean Corporate Governance: A Response to Crisis, J. APP. CORP. FIN.

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