Amendment to the FSCMA Passed by the National Assembly’s Political Affairs Committee: Introduction of ‘Fair Value’ Principle for M&A Transactions Involving Listed Companies

This newsletter summarizes the background of the Amendment, its key provisions, expected implementation timeline, and anticipated legislative and regulatory developments.

Background and Legislative Developments

• Limitations of Market-Price-Based Valuation Method: The existing framework determines the consideration for mergers and the exercise price for appraisal rights primarily by reference to market price. Critics have argued that controlling shareholders may influence the outcome by selecting transaction timing that benefits themselves, potentially at the expense of minority shareholders. The Supreme Court of Korea has likewise recognized that, where controlling shareholders effectively have discretion over the timing of a merger, market prices may deviate from fair value solely due to such circumstances (Supreme Court of Korea, Decision dated April 14, 2022, Nos. 2016Ma5394, 2016Ma5395, and 2016Ma5396).
• Regulatory Disparity Between Affiliated and Non-Affiliated Transactions: The amended Enforcement Decree of the FSCMA, which took effect on November 26, 2024, introduced a fair-value assessment framework based on external valuation for mergers with non-affiliated companies. However, mergers between affiliated companies continued to be governed by the existing market-price-based formula.
• Policy Initiative: In its “Measures to Strengthen the Resilience of the Capital Market,” announced on March 19, 2026, the Financial Services Commission proposed the introduction of fair-value determinations and mandatory external valuations for M&A transactions. The Amendment approved by the Political Affairs Committee on May 14, 2026, forms part of this broader policy initiative.

Key Amendments

• Introduction of the Fair Value Principle (Proposed Article 165-4(1)): Under the Amendment, when a listed company undertakes a merger, transfer or acquisition of a material business or asset, comprehensive share exchange or transfer, spin-off, or spin-off merger (collectively, “M&A Transactions”), the transaction value must be determined based on a fair value that comprehensively considers stock price, asset value, earnings value, and other relevant factors. The existing market-price-based formula applicable to mergers between affiliated companies will be abolished, and the fair value principle will apply regardless of whether the transaction involves affiliated parties.
• Statutory Requirement for Board Opinion Statements (Proposed Article 165-4(2)): Where the board of directors approves an M&A Transaction, it must prepare and publicly disclose an opinion statement addressing, among other matters, the purpose and expected benefits of the transaction and the appropriateness of the transaction value. This requirement, previously provided under subordinate regulations and the Regulations on Issuance and Disclosure of Securities, will be elevated to statutory status.
• Mandatory Disclosure of External Valuation Reports (Proposed Article 165-4(3)): In addition to the existing requirement to obtain an external valuation regarding transaction value, the Amendment expressly requires public disclosure of the valuation report.
• Additional Requirements for Transactions Between Affiliates (Proposed Article 165-4(4) and 165-4(6)): For transactions between affiliated companies, the external valuation institution must be selected directly by the statutory auditor or audit committee.
• Revision of the Appraisal Rights Valuation Method (Proposed Article 165-5(3)): Where a dissenting shareholder exercising appraisal rights and the company fail to agree on the purchase price, the price will no longer be determined based on market price. Instead, it must be determined by considering stock price, asset value, earnings value, and other relevant factors. The existing mechanism allowing shareholders who disagree with the determined purchase price to petition the court for a determination will remain unchanged.
• New Enforcement Authority of the Financial Services Commission (Proposed Article 165-18): The Amendment authorizes the Financial Services Commission to impose corrective measures, including corrective orders, recommendations for the dismissal of officers, and restrictions on securities offerings for a specified period, in cases of violations relating to:

• preparation and disclosure of board opinion statements;
• selection of external valuation institutions;
• disclosure of conflicts of interest; and
• determination of appraisal rights purchase prices.

Effective Date and Transitional Rules

• Effective Date: The Amendment will take effect three months after promulgation.
• Applicability: The amended provisions regarding transaction valuation (Article 165-4) and appraisal rights purchase prices (Article 165-5(3)) will apply to transactions for which the relevant board resolution is adopted after the Amendment becomes effective. Companies currently considering mergers or other restructuring transactions should therefore assess the potential applicability of the Amendment based on the anticipated timing of board approval.

Future Legislative and Regulatory Developments

• Issues Excluded During the Legislative Process: Several proposals considered during the Political Affairs Committee review were ultimately excluded from the Amendment, including: i) imposing joint and several liability on the company and its directors and auditors for damages arising from unfair valuation, coupled with a reversal of the burden of proof regarding fault; ii) deeming net asset value to constitute fair value where the determined fair value falls below net asset value; and iii) introducing approval by disinterested shareholders (i.e., a majority-of-the-minority voting requirement). Nevertheless, these measures may be reconsidered in future legislation or incorporated into subordinate regulations.
• Matters Delegated to Subordinate Legislation: The detailed standards and procedures for determining fair value, as well as disclosure requirements, will be prescribed by Presidential Decree. Companies should therefore closely monitor forthcoming amendments to the Enforcement Decree and related regulations.
• Broader Legislative Trend: The Amendment is consistent with recent corporate governance reforms, including the amendment to the Korean Commercial Act (Article 382-3), effective July 22, 2025, which expanded directors’ fiduciary duties to encompass both the company and its shareholders. In addition, discussions concerning the introduction of a mandatory tender offer regime, reforms to the delisting system, and regulation of multiple listings are progressing in parallel. Market participants should continue to monitor these broader developments in Korea’s capital markets framework.