Kim, Sang Gon --- "Issuance of New Shares as a Defensive Mechanism Against Hostile Takeover" [2012] ELECD 878; in Kim, Hwa-Jin (ed), "Korean Business Law" (Edward Elgar Publishing, 2012)

Book Title: Korean Business Law

Editor(s): Kim, Hwa-Jin

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781781003398

Section: Chapter 12

Section Title: Issuance of New Shares as a Defensive Mechanism Against Hostile Takeover

Author(s): Kim, Sang Gon

Number of pages: 22

Extract:

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




1 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 ...