Yes, there is a regulatory regime applicable to mergers and similar transactions.  

The Korea Fair Trade Commission ("KFTC") is the applicable national regulatory agency. 

N/A

Yes. The merger filing requirements are set out in Article 12 of the Monopoly Regulation and Fair Trade Act ("MRFTA"), the principal legislation with respect to Korean competition law. Specific rules regarding filing requirements are set forth in the Enforcement Decree of the MRFTA and the KFTC’s Guidelines for Reporting Business Combinations.

On December 9, 2020, the National Assembly approved the amended Monopoly Regulation and Fair Trade Act (the “Amended MRFTA”) to take effect on December 30, 2021. Under the Amended MRFTA, the merger filing requirements are set out in Article 11.

Transactions include:

• acquisition of 20 percent (15 percent in the case of domestic listed companies) or more of the shares of the target company;
• acquisition of additional shares by the shareholder who already owns the shares of the target company in the ratio set forth above to become the largest shareholder;
• participation in the establishment of a new joint venture company as the largest shareholder;
• acquisition of all or a significant portion of the business or fixed assets of the target company;
• merger with another company; and
• interlocking directorate, that is, occupation by a director, an officer or an employee of a company of a position as a director or officer of other company, while such person maintains his or her position in the appointing company (except for an interlocking directorate between affiliated companies).
   

Yes. As stated in our response to "What kinds of transactions are "caught" by the national rules?", regardless of whether control is conveyed, an acquisition of a sufficient number of shares to bring a buyer’s shareholdings of a target company to at least 20 percent (15 percent for companies listed on a Korean stock exchange) of the total voting stock of a target company will trigger a notification requirement if other assets/sales thresholds for the buyer and target are met.

Yes, foreign-to-foreign transactions are captured as long as such transactions meet the local nexus test. The current local nexus test requires that for a foreign-to-foreign transaction, the total Korean sales of each party (including its affiliates) is KRW 30 billion (approx. USD 27 million) or more. (When reviewing whether the sales amount meets the thresholds discussed above, the sales of all companies remaining as affiliates of the buyer and the target, respectively, both before and after the completion of the transaction, should be included.) 

Please note that relevant parties for share acquisitions and mergers are the buyer and target; for JVs, the largest investor and any one of the other participating investors; for business/asset transfers, the buyer and seller.

For business/asset transfers please note that for the above threshold (i) the sales or assets of the buyer would include the sales or assets of its affiliates, whereas, for the seller, sales or assets of the seller alone would be counted; and (ii) in calculating the sales or assets of the seller, the total sales or assets of the seller would be counted and not just the sales generated by the business/assets to be transferred. 

If only the target company is foreign and the acquiring party is domestic, then the local nexus requirement applies. In contrast, if only the acquiring party is foreign and the target company is domestic, the business combination is regarded as a domestic case and the local nexus requirement does not apply.

In the establishment of a joint venture to be located in Korea, the local nexus requirement does not apply, even if the companies participating in the establishment of the joint venture are foreign companies. For the establishment of a joint venture to be located outside Korea that is not expected to have any effect on the Korean market, a “simplified review” procedure applies, which requires the KFTC to complete its review within 15 days from the date of filing (instead of the regular 30 day timeline) and limits the scope of its review to verifying the accuracy of the information provided in the filing without engaging in an in-depth competitive assessment. 
 

The Amended MRFTA will introduce a new merger control regime that regulates large-sized transactions having an impact on competition in the relevant market in Korea even when the target company does not satisfy the current Korean sales requirement for triggering a filing requirement in Korea.

Pursuant to the Amended MRFTA, newly adopted merger filing thresholds are to be further prescribed by the corresponding Enforcement Decree, and recently, the relevant authorities published an advance legislative notice of the Enforcement Decree containing the detailed filing thresholds.

In addition to the current asset/turnover thresholds, under the Amended MRFTA, a transaction will be subject to a merger filing if all of the following requirements are met:

i.          Value of the transaction is KRW 600 billion or more;

ii.         Acquirer satisfies the current asset/turnover thresholds; and

iii.         Target, which does not satisfy the current asset/turnover thresholds, has significant business activities in South Korea.

Under the current Enforcement Decree published by the KFTC, "significant business activities" refers to any of the following events occurring within three fiscal years immediately preceding the closing of the transaction:

i.          Target has provided its products/services to more than 1 million customers per month in the relevant Korean market; or

ii.         Target has leased research facilities and/or hired researchers in Korea and the relevant annual budget is KRW 30 billion or more.

The KFTC is collecting public opinion on the new thresholds until July 7, 2021.  Based thereon, there may be revisions made to the Enforcement Decree to the extent appropriate.

Share acquisitions, mergers, JV establishments and business/asset transfers all have the following thresholds in common:

• worldwide assets or sales of either party and its affiliates is at least KRW 300 billion (approx. USD 270 million); and
• ​worldwide assets or revenue of the other party and its affiliates are at least KRW 30 billion (approx. USD 27 million). 

As mentioned above, however, under the Amended MRFTA, even if the target does not meet the current Korea sales threshold, a transaction will be subject to a merger filing if it meets the additional threshold under the Amended MRFTA explained in the section “Are foreign-to-foreign transactions captured by the merger control regime, and is there a local effects test?”.

“Affiliates” for purposes of this calculation are affiliates of each of buyer or target that would be each such party’s affiliates both before and after the notifiable transaction.

Please note that relevant parties for share acquisitions and mergers are the buyer and target; for JVs, the largest investor and any one of the other participating investors; for business/asset transfers, the buyer and seller.

An additional threshold applies to asset/business transfers involving the transfer of only a portion, not all, of seller's business: the consideration of the Business Transfer is (i) KRW 5 billion (approx. USD 4.5 million) or more; or (ii) 10 percent or more of the total assets of the seller, whichever is smaller. 

For business/asset transfers please note that for all of the above thresholds (i) the sales or assets of the buyer would include the sales or assets of its affiliates, whereas, for the seller, sales or assets of the seller alone would be counted; and (ii) in calculating the sales or assets of the seller, the total sales or assets of the seller would be counted, and not just the sales generated by the business/assets to be transferred. 

For interlocking directorates, if worldwide assets or revenue of a company appointing its employee to an executive position in another independent company is at least KRW 2 trillion (approx. USD 1.8 billion) and that of the other company is not less than KRW 30 billion (approx. USD 27 million), a merger filing is triggered.

The filing is mandatory to the extent that the filing thresholds are met. 

The KFTC's merger review of a reportable transaction is suspensory for larger companies: if the aggregate amount of assets or sales of either party (including their respective affiliates) is KRW 2 trillion (approx. USD 1.8 billion) or more, then notification must be made and clearance obtained prior to closing. (When reviewing whether the sales amount meets the thresholds discussed above, the sales of all companies remaining as affiliates of the buyer and the target, respectively, both before and after the completion of the transaction, should be included.) However, interlocking directorates are always subject to a post-closing filing regardless of the size of the parties.

Other notifiable transactions (for companies subject to lower notification thresholds) are subject to post-closing filings (i.e. post-closing notification and clearance).

However, a voluntary preliminary filing is possible in Korea. A voluntary preliminary filing is a formal process under Korean antitrust laws that can be commenced as early as the binding term sheet or MOU stage of a transaction. The process would still involve the same level of KFTC review/scrutiny as for a formal merger filing, but the starting point of the KFTC’s review would be brought forward to the term sheet/MOU stage. If a definitive agreement is signed before the KFTC issues its preliminary decision, then a formal filing would be made again on the basis of the definitive agreement and the KFTC would merely continue its review instead of starting over from the beginning. Where the KFTC reaches a preliminary decision on clearance before the definitive agreement is signed, a formal filing would still be made again once the definitive agreement is signed; but if the formal filing contains no substantive changes from the voluntary preliminary filing, the KFTC is required to issue its formal decision on clearance within 15 days of the formal filing. 

N/A. The parties should obtain the KFTC’s clearance for the pre-closing filing as stated in response to " Provide the time in which a filing must be made."

The initial filing includes full details of the transaction submitted together with supporting documents, such as general information of the parties (including data from financial statements), names of the shareholders of the parties, information on affiliated companies (including organization charts, etc.) with more detailed information for affiliates having sales in Korea, structure and rationale of the transaction, information on relevant market including market situation, and the effects of the merger, and efficiencies, among other details.

There is a short form notification (a notification requiring less detailed information where competition issues are unlikely). Short-form notification is appropriate where (i) there is an intra-group transfer of assets/business or merger, (ii) if less than 1/3 of the directors/officers of the target holds a position as a director/officer of the buyer (excluding representative director positions) and (iii) if the transaction involves establishment of a private equity fund, a special purpose company engaging in the business of asset-backed securitization or a shipping investment company.

No, filing fees are not required. 

The first phase of the merger review process is 30 calendar days from the filing date; extendable by KFTC for a further 90 calendar days. Most of the cases without substantial anti-competitive concerns are reviewed within 30 calendar days. 

As an exception, if the proposed transaction qualifies as an exceptional case under the KFTC’s “Guidelines on Merger Review” (which generally would be a case where the proposed transaction will not have anticompetitive effects), then the deadline for review is 15 calendar days from the filing date (“simplified review”). Simplified review procedure applies in the following cases (i) the relevant transaction parties are affiliates (in the case of mergers and business transfers); (ii) certain types of transactions where the merger is made simply for investment (and not operational) purposes, such as participation in the establishment of a private equity fund; (iii) when a control relationship is not formed between the acquirer and the target as a result of the merger transaction; (iv) a conglomerate merger between parties with less than KRW 2 trillion of total assets (including affiliates) and less than KRW 2 trillion of turnover (including affiliates); (v) a conglomerate merger where no substitutability or complementarity exists due to the characteristics of the relevant markets; and (vi) an establishment of a joint venture to be located outside Korea that is not expected to have any effect on the Korean market.  
 
The KFTC could request submission of supplementary information/materials, in which case the time required to prepare and submit such information/materials is not included in the above review period (i.e. the review clock is “stopped”).
 

The test is whether a proposed merger or acquisition has a substantial anticompetitive effect on any relevant market. In the context of a horizontal merger, if the combined market share of the parties satisfies the following thresholds, the transaction is presumed to have an anti-competitive effect on the relevant market: 

• if, as a result of the transaction, the combined market share results in a market dominance (i.e. the combined entity has a market share of 50 percent or more in the relevant market or if the aggregated market share of three companies in the market, including the combined entity, is more than 75 percent in the relevant market); 
• if, as a result of the transaction, the combined market share is the largest in the relevant market; and 
• if, as a result of the transaction, the difference between the combined market share and that of the company holding the second-largest market share is more than  25 percent of the combined market share.

The above presumption can be rebutted by “efficiency” or “failing firm” arguments but is difficult in practice.

Other than the market share, factors to be comprehensively considered include unilateral anticompetitive effect, coordinated anticompetitive effect, the level of foreign competition, the possibility of new entry and existence of similar products and neighboring markets.

For the vertical merger, the foreclosure effect and coordinated effect are the main effects considered during the KFTC’s review. Several other easing factors, as well as efficiency, failing firm arguments stated above are all considered in the vertical merger.

For the conglomerate merger, elimination of potential competition by eliminating an actual potential entrant or a perceived potential entrant, exclusion of competition by using enhanced economic strength such as tying, raising entry barriers are the main effects considered during the KFTC’s review. Several other easing factors, as well as efficiency, failing firm arguments stated above are all considered in the conglomerate merger. 

In February 2019, the KFTC announced specific guidelines for "innovation markets", including: 

• No special thresholds for mergers in innovation markets. 
• “Innovation market” refers to an R&D-intensive industry in which R&D capacity is considered as an essential parameter of competition or the relevant market is driven primarily by continuous competition on innovation, and at least one of the parties to the relevant transaction can be regarded as a significant innovator.
• ‘Big Data’ defined as “Information Assets” refers to data (i.e. information) sets consisting of data collected for varying purposes and managed, analyzed or utilized in a systematic and integrated manner.
• The KFTC set out special criteria it will consider when assessing: 
  • The level of concentration in innovation markets: the degree of market concentration in an innovation market will be determined based on criteria such as the amount of R&D expenditure, the size of R&D assets and capacity, patent portfolios (number of patents or utilizations thereof), or the number of competitors competing in the relevant R&D activities. 
  • The competitive effects of mergers in innovation markets: (i) Whether one of the merger parties is a significant innovator in the relevant industry; (ii) The proximity or similarity of the merger parties’ previous or current R&D activities; (iii) Whether a sufficient number of innovators actually competing will remain post-merger; (iv) The gap in innovative capacity that may result between the combined entity and remaining competitors; (v) Whether the merger is a means of eliminating potential competitors from the relevant product market.
  • The competitive effects of mergers involving “big data”: (i) Whether the merger is the only available means of acquiring the Information Assets; (ii) Whether the combined entity would have the ability or incentive to restrict competitors’ access to its Information Assets; (iii) Whether restricting access to the combined entity’s Information Assets would restrict competition; and (iv) Whether the merger may restrict non-price competition due to a reduced incentive of the combined entity to improve its quality of services relating to the collection, management or utilization of its Information Assets

The KFTC may grant unconditional clearance, conditional clearance (i.e. subject to remedies), or prohibit the transaction.

Yes. Although there is no official process for early engagement with the KFTC on remedies, KFTC case handlers are amenable to early engagement at the parties’ request. In cases where there are severe substantial concerns, some parties choose to discuss the possible level of remedies with the KFTC early on. This may be helpful to expedite the merger review process and to ensure the proper level of remedies.

However, the parties could also choose to follow a consent order procedure. If the parties notify the KFTC that they will apply for a consent order procedure, the parties will officially propose remedies to the KFTC. After this, the KFTC will undergo a public consultation process and subsequently will decide whether to accept the final consent order. In this case, the KFTC will also commence a hearing on the issue of whether to accept the final consent order. From the time the parties notify the KFTC of their desire to undergo a consent order process to the time that the KFTC accepts the final consent order, this process will take three months at the very least and can extend for much longer due to the time it takes to gather and consider the opinions of interested parties during the public consultation process. As such, the consent order process is rarely used in cases where it is necessary for the KFTC’s final decision to be rendered as soon as possible. 

Please note, however, that even if the consent order process is not undergone and the parties choose the remedy procedure, the parties can unofficially and voluntarily suggest remedies to the case handler, as stated above.
 

Sanctions include:

• The reporting company: civil penalties up to KRW 100 million; 
• Responsible individuals (including directors/officers) of the reporting company: civil penalties up to KRW 10 million; 
• The KFTC imposes civil penalties for not only domestic transactions but also extra-territorial transactions if a reporting company fails to file or files an incorrect/incomplete notification. However, there is no precedent for the KFTC imposing civil penalties on the relevant individuals for an extra-territorial transaction.

Also, the KFTC can impose remedies if it substantially restricts competition of the relevant Korean market.
 

Penalties include:

• The reporting company: civil penalties up to KRW 100 million; and  
• Responsible individuals (including directors/officers) of the reporting company: civil penalties up to KRW 10 million. 

Although there is a precedent for the KFTC to impose civil penalties against the implementation of a merger (gun-jumping) before clearance, there is no precedent for the KFTC imposing civil penalties for gun-jumping for an extra-territorial transaction.

Yes. Although technically possible, the KFTC does not actively review or challenge mergers that are not notifiable. A noted example of such a review is, in 2002, the KFTC conducted an ex officio review of a transaction involving the acquisition by a major Korean telecommunications company of approximately 11 percent of the shares of another major telecommunications company.

In the case of a transaction that is not notifiable, if the KFTC learns of the transaction through the media or otherwise and deems that such transaction should be reviewed, it will exercise its ex officio review. However, since such a transaction is not notifiable, it is not bound by the time limits within which the regulatory agency must act as discussed in our response to "Please provide an overview of the merger review process. Are there time limits within which the regulatory agency must act? Can they be shortened by the parties or be extended by the regulatory agency?". After the ex officio review, if the KFTC finds that there are no concerns of actual anticompetitive effect, the KFTC will take no action; but if the KFTC does determine actual anticompetitive effects, it will block the transaction (or if closing already occurred, rescind the closing) or impose remedies.

If the KFTC learns of a notifiable transaction that was not notified, the KFTC will order the parties to notify the transaction and review the transaction upon receipt of the notification. Since such review involves a notifiable transaction, the merger review process is the same as set forth in our response to "Please provide an overview of the merger review process. Are there time limits within which the regulatory agency must act? Can they be shortened by the parties or be extended by the regulatory agency?".

The KFTC has been increasingly cooperating with foreign competition authorities (especially EC, DG Comp, and U.S. DOJ) in global M&A cases. Cooperation ranges from simple information exchange to a discussion on anticompetitive effects and remedies. For example, in the Applied Materials and Tokyo Electron merger, the KFTC communicated (through various means such as in-person meetings and conference calls) with the U.S. DOJ, Japan Fair Trade Commission, Taiwan Fair Trade Commission, and others to discuss the progress of their respective review, anticompetitive effect, and remedies, among other things. The KFTC also cooperated with the competition authorities of the U.S. and China, among others, in their review of the ASML-Cymer merger and the Lam Research-KLA Tencor merger. And the KFTC has a tendency to impose similar remedies as other competition authorities to the extent similar anticompetitive concerns would affect the Korean market. However, if the market situation of Korea is distinguishable from other markets, the KFTC imposes different remedies or none at all, as it deems appropriate. 

The KFTC has shown continued interest in mergers in new industries. In connection with the merger among Over The Top (“OTT”) business jointly operated by three major Korean telecommunications operators and a competing OTT business, the KFTC issued behavioral remedies in August 2019 on the basis that the combined entity may refuse to provide or discriminatorily provide broadcasting contents to competitors. The behavioral remedies required the three Korean telecommunications operators to provide broadcasting contents to competitors on reasonable and non-discriminatory terms if requested to provide such contents by the competitors. Also, the KFTC has been increasingly performing economic analysis for transactions that raise substantive issues and require an in-depth review.

Since the KFTC issued its special criteria on innovation markets and big data, the KFTC is applying the criteria on transactions involving innovation markets and big data. For example, when reviewing the merger between the Korea’s largest online application for food delivery, Delivery Hero, and the second and third largest online application for food delivery (owned by Woowa Brothers), the KFTC determined that the overwhelming data regarding food delivery orders which the merged company will obtain post-transaction raises competition concerns.  Specifically, the KFTC viewed that the highly efficient marketing ability that the merged entity will gain based on such database will act as a barrier to entry by competitors.  The KFTC also pointed out that there is increased possibility of the merged entity declining to provide information previously provided freely to restaurants. Considering that the combined market share of the merged entity amounts to nearly 100% of the relevant market and there will be other effects on competition including information data, the KFTC required Delivery Hero to divest one of its food delivery applications to a non-related third party.

The KFTC takes a formalistic approach in determining reporting requirements. Therefore, if a transaction is structured in phases, we would advise our clients to review whether each phase of the transaction meets the step-by-step filing requirements.

The Form CO used in the EU is helpful in preparing the Korean merger filing, given their similarity in form and content. The Korean merger filing can be prepared much more efficiently if the parties provide Korean counsel with the Form CO and Korean market information.