KFTC Amends Guidelines on Simplified Review for Foreign M&A Transactions With No Impact on Korean Market and Expanded Safe Harbor for Non-Horizontal Mergers

On December 19, 2022, the Korea Fair Trade Commission (KFTC) adopted the amendments to its Merger Review Guidelines and Merger Notification Guideline, which it proposed in October 2022. The amendments go into effect on December 30, 2022 and (i) establish more concrete standards for the simplified merger review applicable to foreign transactions with no impact on the Korean market, (ii) expand the safe harbor for non-horizontal (vertical and conglomerate) mergers, and (iii) expand the applicable scope of simplified review and notification to include transactions that are purely for investment purposes. These changes are aimed at easing companies’ administrative burdens and transactional costs and at streamlining the KFTC’s merger review for an increasing number of transactions now subject to such review.

Key Provisions of the Amendments

Concrete Simplified Review Criteria for Foreign-to-Foreign Mergers With No Impact on Korean Market

The current Merger Review Guidelines specify “instance where the acquired company is a foreign company and [the transaction] has no impact on the domestic market” as a type of transaction qualifying for simplified review. However, it does not provide for a concrete standard as it did not articulate the factors considered in determining “impact on the domestic market.”

Thus, the amendments to the Merger Review Guidelines establish as such factors the nationality and location of the acquiring and target companies, the current or planned business location of a target company, and the target’s Korean sales. The amendments also list as examples of “transactions with no impact on the domestic market” the formation of a joint venture for overseas resource development and the asset transfer of fixed assets such as overseas power generation facilities.

Expanding the Safe Harbor for Non-Horizontal (Vertical and Conglomerate) Mergers

Under the current Merger Review Guidelines, non-horizontal mergers qualify for the safe harbor if (i) the Herfindahl-Hirschman Index (HHI) for each relevant market is less than 2,500, and the parties’ combined market share is less than 25%, or (ii) the parties are not among the top three players in each relevant market. Thus, the current provisions exclude a transaction from the safe harbor even if it is unlikely to result in anticompetitive effects due to the presence of one or two strong competitors with high market shares – simply because of the degree of market concentration. To address this problem, the amendments introduce a safe harbor for a vertical/conglomerate merger between companies with a market share of less than 10% in each relevant market regardless of the degree of market concentration.

Expanding the Applicability of Simplified Review and Notification for Pure Investment Transactions

The amendments establish additional types of “pure investment activity without management purpose” subject to simplified review: (i) participating as a new limited partner by investing in an already established institutional private equity fund (excluding those jointly managing the company in which the fund invests), (ii) concurrently serving as an executive officer as part of a new venture or a technology business entity exempted from merger notification under Article 11 (3) of the Monopoly Regulation and Fair Trade Act (MRFTA), and (iii) the acquisition of real properties such as land, warehouse, and office building for investment purposes by general companies.

The amendments also allow the KFTC to conduct a simplified review for a transaction that does not fall under any of the specified categories above when it is clearly intended only for an investment under the given circumstances, e.g., a statutory ban on participating in management.

In addition, under the amendments, the following activities or situations qualify for simplified notification: (i) participating in the establishment of a certain project financing vehicle (PFV), (ii) participating as a new limited partner by making an additional investment in a certain existing institutional private equity fund (excluding those jointly managing the company in which the fund invests), (iii) concurrently serving as an executive officer as part of a new venture or a technology business entity exempted from merger notification under Article 11 (3) of the MRFTA, and (iv) filing a formal notification with no significant changes in facts and market conditions after the KFTC’s prior issuance of a provisional approval.

Implications

The amendments address the need to effectively respond to the growing number of mergers requiring the KFTC’s review. They will facilitate the notification, review, and approval for mergers that do not raise competition concerns, thereby allowing the KTFC to focus on cases that do. In addition, the amended simplified review criteria for foreign mergers with no impact on the domestic market and the expansion of the safe harbor for non-horizontal mergers will enhance the predictability of the KFTC’s merger review process. The amendments are part of the KFTC’s ongoing efforts to streamline its merger control regime as the KFTC is considering expanding the scope of merger filing exemptions and accepting voluntary remedies for anticompetitive transactions.

By Yulchon, Korea, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact korea@transatlanticlaw.com 

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