The Monopoly Regulation and Fair Trade Act (MRFTA) is the relevant merger control legislation in South Korea. The MRFTA prohibits “business combinations” that restrict competition (Article 7 of the MRFTA) and stipulates the transacting parties’ obligations to notify the Korea Fair Trade Commission (KFTC) (Article 12 of the MRFTA). The Enforcement Decree of the MRFTA provides additional regulations regarding merger filing and the merger-review process.
The KFTC has internal guidelines for additional guidance regarding merger filing and the merger-review process, such as the Merger Review Guidelines, Merger Filing Guidelines, Business Combination Corrective Measure Imposition Criteria, Business Combination Corrective Measure Imposition Guidelines, and Criteria for Imposing Administrative Fines for Failure to Comply with Business Combination Related Corrective Measures.
South Korea does not have any other relevant legislation for foreign transactions or investment or relating to particular sectors. However, other statutes related to the finance, telecommunication, and broadcasting sectors, such as the Act on the Structural Improvement of the Financial Industry, Financial Holding Companies Act, and Telecommunications Business Act, grant review authority over business combinations in the relevant sectors to the sector-specific regulators (ie, the Financial Supervisory Commission (FSC), the Korea Communication Commission (KCC) or Ministry of Science and ICT (MSIT)), but requires those regulators to consult with the KFTC. In such cases, the relevant party is exempted from its obligation to notify the KFTC (Article 12.4 of the MRFTA).
The KFTC, an administrative body established under the Prime Minister's Office, enforces the MRFTA.
Generally, other authorities are not involved in the KFTC merger review process. However, in the case of finance, telecommunication, and broadcasting sectors, the FSC, KCC or MSIT is required to consult with the KFTC during its review regarding the merger’s potential for anti-competitive effects (see 1.2 Legislation Relating to Particular Sectors). In practice, the FSC, KCC or MSIT first requests that the KFTC review whether the merger restricts competition and will conduct its own review after obtaining the results of the KFTC review.
Notification is mandatory where the size of the merging parties exceeds the thresholds (see 2.5 Jurisdictional Thresholds).
There is no notification requirement in the following circumstances (Article 12.3 of the MRFTA):
The MRFTA imposes an administrative fine of up to KRW100 million for failure to make a timely and correct notification (Article 69-2 of the MRFTA).
In practice, the KFTC imposes administrative fines according to the above rule. The decision to impose an administrative fine is made through a formal resolution by the KFTC and that resolution is made public. In 2018 and 2019, the KFTC imposed administrative fines of KRW327 million (25 cases) and KRW212.6 million (12 cases), respectively, for failing to notify.
Business combinations that are subject to merger control include the following transactions (Article 12.1 of the MRFTA):
An interlocking directorate is subject to merger control only when the company subject to the notification requirement is a large company (ie, company or companies with total assets or total sales of all affiliates are over KRW2 trillion). In addition, although other transactions involving a large company are subject to pre-merger notification, an interlocking directorate is subject to post-merger notification (see 3.1 Deadlines for Notification).
Transfer of shares, interlocking directorate, and company establishment among affiliates are not subject to notification requirements (Articles 7.1 and 12.1 of the MRFTA). However, mergers and business transfers among affiliates are subject to notification requirements, although such transactions will be subject to simplified review (Merger Filing Guidelines).
Transactions not involving the transfer of shares or assets can be subject to notification requirements, for example, in the case of interlocking directorates.
There is no definition of “control” under the MRFTA for the purpose of determining the scope of a merger. However, the de facto standards of control can be indirectly inferred from the definition of transaction types as merger filing requirements, such as percentage of shares and interlocking directorate (see 2.3 Types of Transactions).
One party to the transaction (including worldwide affiliate companies both before and after the transaction) has total assets or annual turnover in the amount of KRW300 billion (KRW2 trillion in the case of interlocking directorate) or more and the other party in the amount of KRW30 billion or more.
In addition to these general thresholds, local thresholds are applied to overseas mergers, including transactions where:
If each of these merging parties (including worldwide affiliate companies) has an annual local turnover of KRW30 billion or more, notification of the merger is mandatory.
The MRFTA does not provide special jurisdictional thresholds applicable to particular sectors (see 1.2 Legislation Relating to Particular Sectors).
Jurisdictional thresholds are calculated based on total assets or annual turnover (see 2.5 Jurisdictional Thresholds), and the calculation includes worldwide affiliate companies both before and after the transaction.
When converting a foreign company’s financial statements in foreign currency to Korean Won, the exchange rate as of the end of the year immediately preceding the fiscal year of the merger is applied to the total assets, paid-in capital, and total shareholders’ equity, while the average exchange rate of the immediately preceding fiscal year is applied to the total turnover (same for local turnover) and net profit (Merger Filing Guidelines).
Jurisdictional thresholds, based on total assets or annual turnover, are based on publicly disclosed book value.
Jurisdictional thresholds are calculated on a group-wide basis, meaning that the total assets or total turnover of all the affiliate companies worldwide, both before and after the transaction, are relevant.
In Korea, the calculation of jurisdictional thresholds is not based on the total turnover of the seller and target so the seller’s turnover does not need to be included with that of the target.
“Group-wide” is defined as companies belonging to the same “business group,” where “business group” is defined as a group of companies, the businesses of which are controlled by the same person, determined by shares or “control” (Article 2 of the MRFTA).
Although there is no explicit regulation, the KFTC may consider changes in the business during the reference period, and the notifying party may submit additional materials relevant to a change in the business that is beneficial to them.
Foreign-to-foreign transactions are subject to merger control if each party to the transaction has an annual local turnover of KRW30 billion or more (see 2.5 Jurisdictional Thresholds) in addition to satisfying the general thresholds.
No local effects test or local presence is required.
There is no filing requirement when a target (including worldwide affiliate companies) has no sales in South Korea.
In South Korea, there is no market share jurisdictional threshold.
There is no special provision in the MRFTA exempting joint ventures. Thus, joint ventures will be subject to merger control under the MRFTA if the parties to the joint venture meet the threshold requirements (see 2.3 Types of Transactions). The largest shareholder of a newly established company (ie, new joint venture company) must file a merger notification to the KFTC.
The KFTC is not allowed to investigate a transaction that does not meet the thresholds for the purpose of merger control. However, the act of jointly establishing a new company (ie, a new joint venture company) can be considered collusion under certain circumstances (Article 19 of the MRFTA), and in these cases it is possible that the KFTC will conduct a cartel investigation.
The KFTC can sanction a party to a transaction in violation of the MRFTA within five years of commencing an investigation and, if there was no such investigation, within seven years from the end of the unlawful act (Article 49 of the MRFTA).
In the case of pre-notification, implementation of a transaction must be suspended until clearance by the KFTC (Article 12.8 of the MRFTA).
The KFTC can impose an administrative fine of up to KRW100 million for implementation of a pre-notified merger before its clearance (Article 69-2 of the MRFTA).
Company executives responsible for implementing illegal mergers after prohibition of the merger by the KFTC are subject to (Article 66 of the MRFTA):
Criminal prosecution is possible only when the KFTC files a complaint with the Prosecutor's Office (Article 71 of the MRFTA).
If a party implements a transaction without the KFTC’s approval, the KFTC may issue a corrective order to the party to suspend the transaction or make remedies (Article 16 of the MRFTA). Thus, in practice, parties rarely implement transactions after notifying the KFTC but before receiving its approval. This practice applies to both foreign-to-foreign and domestic transactions.
However, there are cases where a party subject to pre-merger notification notifies the KFTC after the merger, in which case the KFTC imposes an administrative fine. The KFTC’s decision to impose an administrative fine is made public.
There is no general exception to, or procedure for, waiving suspensive effect in South Korea.
There is no circumstance in which the KFTC permits closing before clearance.
Pre-merger notification is required for certain types of business combination where either of the parties to the transaction is a large company that has worldwide assets or annual turnover of KRW2 trillion or more (including the assets and turnover of its affiliates, according to Article 12.6 of the MRFTA). If a large company takes part in a transaction, notification can be filed at any time after the date of signing the agreement but before the completion of the transaction, as long as the transaction is not completed before it is cleared by the KFTC.
Mergers in which only small companies are engaged require a post-merger notification. For these mergers, notification should be made within 30 days after the completion of the transaction.
An interlocking directorate requires only a post-merger notification, even if one of the parties is a large company.
The KFTC imposes administrative fines for violation of notification deadlines in practice, and any such decisions are publicly disclosed.
Generally, both pre-merger and post-merger notifications occur after signing of a binding agreement (see 3.1 Deadlines for Notification).
However, a system of voluntary preliminary notification is also in place. Even without a signed agreement, a company that plans to merge with another can request that the KFTC review the planned merger before the ordinary notification period and decide whether the planned merger will substantially restrict competition. In such a case, the notifying party still needs to file a formal notification with the KFTC and go through the normal merger-review process.
There is no filing fee for the KFTC's review or notification.
The acquiring company is responsible for filing. For an acquisition or ownership of another company's shares, the party that acquires or owns at least 20% of another company (or at least 15% for companies listed on the Korea Exchange) must notify the merger with the KFTC. For an establishment of a new joint-venture company, the largest shareholder must notify the KFTC.
The KFTC provides notification forms for five different types of transactions, such as share subscription, in its Merger Filing Guidelines (see 2.3 Types of Transactions). A business entity subject to the notification requirement must provide information about the notifying company and the counterpart company’s status, finance, sales in South Korea, and the competition in the relevant market using the relevant form for the transaction and must submit a report about potential anti-competitive effects. If the KFTC deems it necessary, it may request further data or information.
A business entity subject to the notification requirement must submit the relevant notification form, depending on transaction type, along with the documents required by the form. The business entity must submit materials supporting the nature of the transaction, such as the shareholder status of the notifying company and the target company, the status of affiliates, the status of relevant market, transaction agreements, the interlocking directorate plan (in the case where the notifying entity and a related party are planning to acquire shares or an interlocking directorate with respect to a company in its possession), a copy of corporate registration, and the annual audit report.
The filing must be submitted in the Korean language, and documents in a foreign language are usually submitted with a Korean translation.
Documents are not required to be certified, notarised or apostilled.
If the details of notification or attached documents are incomplete, the KFTC will request the party to supplement the materials and will suspend the review process until a sufficient response is submitted.
The KFTC requires parties to supplement material in practice when it deems it necessary during review.
The KFTC imposes an administrative fine if the notifying party supplies misleading information in the filing (Article 69-2 of the MRFTA). However, it is difficult to find an instance where a notifying party supplied misleading information in practice.
The review process in South Korea is not divided into phases and there are regulations only on the possibility of extending the review period.
In principle, the KFTC must finish the review within 30 days from the notification, but it may extend the review period up to an additional 90 days after the lapse of the initial 30-day period. Accordingly, the KFTC may review merger cases for 120 days in total.
There are no pre-notification discussions in South Korea.
The majority of the notified mergers pass the KFTC review without further requests for information. If the KFTC finds it necessary to request additional information, mostly related to issues raised during its review, it will ask the parties to provide the information within a certain time limit. In such case, the progress of the review period is suspended (ie, the clock is stopped) until the parties satisfactorily provide the requested additional information.
In the KFTC Merger Review Guidelines, the KFTC presumes that the following mergers do not substantially restrict competition and therefore conducts a simplified review:
In such cases, the KFTC only reviews factual matters of the notified case based on documentation provided and informs the company of the review result, in principle, within 15 days from the date of notification.
The KFTC has discretion to determine the timeline for clearance within the specified review period (see 3.8 Review Process) and there are no official procedures for expediting the review process.
The MRFTA prohibits a merger which substantially restricts competition in a particular market.
The MRFTA provides that the following circumstances substantially restrict competition (Article 7.4 of the MRFTA):
A merger is considered not to restrict competition substantially in the following cases (analysis of market concentration, KFTC Merger Review Guidelines):
Consideration of Market Concentration
In the case of “innovative markets” (markets where innovative activities such as research and development are essential, due to the nature of the industries such as IT and semiconductors), market shares may be difficult to determine based on the total product sales. Consequently, the market concentration can be determined by taking into account R&D costs, size of assets and capacity specialised for innovative activities, the number of patent applications or citations, and the number of companies that participate in the innovation competition (provided in the 2019 revision of the KFTC Merger Review Guidelines).
Consideration of Other Factors
However, whether or not competition is actually restricted will be determined based on the totality of the following factors in addition to the market concentration:
The definition of the market related to the transaction is determined based on the object of the transaction (product market) and the transaction region (geographic market).
The product market, based on the objective of the transaction, is seen as the collection of products that a considerable number of buyers could instead choose to purchase in the event of a meaningful increase in the price of a certain product for a meaningful period of time. The following factors are considered:
However, in the case where the industry of the merged company, by its nature, requires innovative activities such as R&D or involves sustainable innovative competition, and where at least one of the merging parties is an important business entity in that competition, areas with similar innovative activities can be defined separately (innovative market) or defined together with the manufacturing and sales markets (provided in the 2019 revision of the KFTC Merger Review Guidelines).
The geographic market, based on the transaction region, is seen as the entire region into which a considerable number of buyers could shift their purchases in response to an event where the price of a certain product remains constant in all other regions, but there is a meaningful increase in the product’s price for a meaningful period of time in a specific region. The following factors are considered:
There is no de minimis clause based on the parties’ total sales or market size in South Korea.
The KFTC refers to the relevant decisions of foreign competition authorities in some cases. In particular, as the US, EU, Japanese and Chinese authorities and the KFTC often simultaneously conduct merger review of the same transaction, it is common for the KFTC to consider decisions from the foregoing jurisdictions.
The KFTC investigates whether competition is substantially restricted in a certain transaction area, regardless of the nature of the merger, such as horizontal, vertical, or both. The KFTC considers monopoly effects, co-operative effects, and market foreclosure effects in addition to market concentration in its investigation (see 4.1 Substantive Test).
Even if a merger restricts competition, if the effect of enhanced efficiency resulting from the merger is larger than the negative effects of restricting competition, or if the merging company cannot survive without the merger, the KFTC permits such a merger (Article 7.2 of the MRFTA). However, the burden of proof of the above lies with the merging parties.
The effect of "enhancing efficiency as a result of a merger" refers to the enhanced efficiency in the areas of production, sales and R&D, or the effect of enhanced efficiency on the national economy as a whole as determined based on the following (KFTC Merger Review Guidelines):
The effect of enhancing efficiency in the areas of production, sales, and R&D can be assessed by taking the following into consideration:
The effect of enhancing efficiency on the national economy as a whole can be assessed by taking the following into consideration:
The KFTC takes into account non-competition issues (eg, job creation, development of regional economies, development of forward- and backward-related markets, stabilisation of the nation’s economy, and market pollution) in determining national enhanced efficiency effects (see 4.5 Economic Efficiencies), which is explicitly permitted under the KFTC Merger Review Guidelines.
The notifying company submits a report on enhanced efficiency effects in a merger filing, and the KFTC takes this into account during its review. However, in practice, there has been no case where a merger was permitted, despite a finding that the merger restricted competition, because of enhanced efficiency effects.
The MRFTA treats joint ventures as business combinations that are subject to merger control. A party in the process of becoming the largest shareholder of a newly established company (ie, new joint-venture company) must file a merger notification to the KFTC.
In any case, some joint ventures formed between competitors may be considered unlawful restrictive agreements or practices if the parties (ie, parent companies) intend to carry out the main part of their business by establishing a joint venture (Article 19.1 of the MRFTA).
The KFTC can prohibit or interfere with a transaction by imposing various remedies, including (Article 16 of the MRFTA):
The KFTC imposes remedies in the form of corrective measures when it makes an adverse decision on a case. The KFTC can require that the parties make a report confirming compliance with remedies within a certain time period.
When the KFTC has concerns about a transaction, the parties may voluntarily submit corrective measures, such as divestitures or behavioural remedies, and apply for a “consent decree”. A “consent decree” is a procedure whereby a company subject to the KFTC investigation submits a corrective measure for voluntary resolution to resolve anti-competitive concerns, and the KFTC concludes its investigation without finding of any infringement when the corrective measure is deemed fair, to restore free competitive order (Article 5-2 of the MRFTA).
In September 2013, Microsoft Corporation executed an agreement with Nokia Corporation to acquire Nokia's mobile phone and service business and filed a merger notification with the KFTC in November 2013. In February 2015, the KFTC decided to initiate the consent decree process with Microsoft to resolve issues in connection with the acquisition. It is the first merger review case where the KFTC decided to initiate the consent decree process.
When complying with standards for imposing remedies regarding a merger, the KFTC must comply with the following general principles.
Remedies must reflect the facts of a merger properly and be reviewed on a case-by-case basis, and must remedy effectively anti-competitive concerns caused by the merger. This is determined by considering factors such as whether the remedy can resolve all of the anti-competitive concerns caused by the merger, whether the remedy can be easily implemented and supervised, and whether the anti-competitive concerns can be eliminated in the near future.
The remedy must be imposed to the minimum extent necessary to resolve the anti-competitive concerns caused by the merger and restore or maintain the current level of competition effectively and the remedy must be feasible and sufficiently clear and specific to determine objectively whether it has been implemented.
In the event that a remedy is imposed, the remedy must be structural, and behavioural remedies can only be imposed with the structural remedies to supplement the implementation of the structural remedies. However, if structural remedies are impossible or ineffective, imposing only behavioural remedies is permitted.
The KFTC imposes appropriate structural and behavioural remedies to resolve concerns about anti-competitive effects on a case-by-case basis. In recent cases, the KFTC mainly imposed measures such as restrictions on the business method and transfer of business.
However, it is difficult to find cases where a remedy addressed non-competition issues.
When the KFTC has concerns about a transaction, the parties may voluntarily submit corrective measures, such as divestitures or behavioural remedies, and apply for a “consent decree” (see 5.2 Parties’ Ability to Negotiate Remedies).
The KFTC cannot initiate a consent decree procedure on its own. Instead, the company suspected of a violation must submit a written application for a consent decree to the KFTC. The consent decree application must include facts that specify the conduct engaged by the company and corrective measures necessary for the restoration of competitive order (Article 51-2 of the MRFTA).
The KFTC decides whether to initiate the consent decree process by comprehensively considering factors, such as the need for quick measures and the need for direct compensation for consumer harm. Once the consent decree process is initiated, the KFTC must provide interested parties, including the applicant, an opportunity to submit their opinion during a period of at least 30 days, and provide notification thereof to interested parties or make an announcement through its official gazette or website (Article 51-3 of the MRFTA).
The KFTC may approve a consent decree when the corrective measure submitted by the applicant satisfies the following requirements:
When imposing asset divestitures, the KFTC must specify the assets to be sold, sale period and other additional obligations.
The merging company as a rule selects the counterparty of the divestiture and the KFTC may require the merging company to consult in advance with the KFTC on the adequacy of the counterparty.
The KFTC may require the merging company to consult with the KFTC before concluding the asset sale agreement in order to supervise the adequacy of such agreement.
As a rule, the deadline for implementing a divestiture is determined by considering the size of the assets to be sold, the scope, complexity, overall economic conditions, and industry practices within the range of three to six months. However, the KFTC may extend the implementation period once within the range of three to six months, pursuant to its authority or at the request of the merging company.
In the event that the KFTC imposes a remedy, the KFTC has in effect approved the transaction on the condition that the remedy is implemented, and thus the transaction can proceed. However, the remedy must be implemented within the specified period.
In the event that a party fails to implement the remedy imposed by the KFTC, the KFTC can impose an enforcement fine (Article 17-3 of the MRFTA).
Furthermore, if a party does not comply with a remedy, the party may be punished by imprisonment of not more than three years or by a fine not exceeding KRW150 million (Article 16 of the MRFTA).
The KFTC issues a formal written decision after completing the review process.
The KFTC only publicises the result of its review if an anti-competitive merger is brought to the full Commission hearing or if it is in the public interest.
In February 2020, the KFTC imposed corrective measures in the case of Danaher Corporation’s acquisition of the biopharma business from General Electric Company. The KFTC ordered that either one of the two companies divest all of its assets related to eight biopharmaceutical processing products which raised monopolistic concerns according to Article 7.4 of the MRFTA (see 4.1 Substantive Test).
In 2019, a total of 127 merger notifications were filed with the KFTC regarding foreign-to-foreign transactions, and none of those transactions were subject to corrective measures.
In 2018, a total of 95 merger notifications were filed with the KFTC regarding foreign-to-foreign transactions, and the KFTC imposed remedies in the following two cases:
Furthermore, in November 2017, the KFTC imposed behavioural remedies on the share acquisition between Maersk Line A/S and Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft KG. In April 2017, the KFTC imposed structural remedies on the acquisition of E. I. du Pont de Nemours and Company by The Dow Chemical Company.
There is no regulation on ancillary restraints in Korea.
Third parties are not allowed to participate actively in the review process. However, they can submit information and their opinions. Third parties are not required to show a special interest in the transaction.
Any class of third party (eg, formal complainant) does not have different rights from those of other third parties (Article 52.1 of the MRFTA). Third parties can also be heard during the full Commission hearing upon KFTC’s approval (Article 52.2 of the MRFTA).
Third parties can request the KFTC for data relating to measures that the KFTC has taken. The KFTC must comply with such requests if it feels it is in the public interest. The persons providing the relevant data must grant consent (Article 52-2 of the MRFTA).
When the KFTC recognises that it is necessary, it can consider the opinions of interested parties. In the case of a merger that has anti-competitive concerns, the KFTC often contacts third parties for their opinions (ie, competitors, customers, suppliers, and experts), and the KFTC generally respects these opinions. In addition, third parties can also be heard during the full Commission hearing and present their opinions upon KFTC’s approval.
In practice, the KFTC contacts third parties in a variety of ways, such as telephone calls or a formal request to submit an opinion regarding the relevant transaction.
Because there is no negotiation procedure in Korea, there are no cases where the parties propose remedies or where the KFTC contacts a third party regarding a market test of the remedies.
The KFTC does not publicise merger notifications or related information obtained during its review. The KFTC only publicises the result of its review if an anti-competitive merger is brought to the full Commission hearing or if it is in the public interest.
The KFTC keeps information related to business secrets confidential, and any party can request that certain information it provides to the KFTC be kept confidential.
Based on Article 36-2 of the MRFTA, the KFTC can:
The co-operation can occur regarding both general policy matters and specific transactions. However, in practice, the co-operation occurs in relation to reviews of the same or similar transactions.
The KFTC is not required to obtain the parties’ permission to co-operate with other jurisdictions.
Any party engaged in a merger can file an appeal with the KFTC or Seoul High Court if dissatisfied with a decision of the KFTC.
The appellant can file an appeal with the KFTC for re-consideration within 30 days of receiving the written decision being challenged (Article 53 of the MRFTA). It can also appeal directly to the Seoul High Court within 30 days of receiving the written decision being challenged for judicial review (Article 54 of the MRFTA). If the appellant is dissatisfied with the result of the KFTC's re-consideration of its original decision, it can still file an appeal to the Seoul High Court for judicial review within 30 days after receiving the KFTC's written decision on re-consideration of its original decision.
In the case of a merger where Shinsegae acquired shares of Wal-Mart Korea, the KFTC imposed a remedy ordering Shinsegae to transfer four Wal-Mart Korea regional branches to a third party other than the top three companies in terms of sales. The Seoul High Court found that:
in the case of Daegu’s Siji-Gyeongsan district, which was one of the four regions, only Shinsegae and Wal-Mart operated stores among the top three companies;
it is difficult to find a potential acquirer other than the top three companies in an oligopoly of four to five companies; and
the order violated the proportional principle because Shinsegae would have no choice but to accept unfavourable sales conditions, given that both the sale period and target transfer company were limited.
Thus, the Seoul High Court held that the KFTC’s remedy orders for all four regions were unlawful (Seoul High Court Decision 2006Nu30036 rendered on 3 September 2008).
Third parties have no right of appeal.
In 2020, the KFTC announced the following legislative proposals:
For reference, with regard to the first bullet point above, in 2018, the KFTC had already proposed legislation to introduce a new notification threshold based on the value of a transaction in order to capture substantial transactions that have a potential impact on the Korean market but where the local turnover thresholds of KRW30 billion is not satisfied such as Facebook-WhatsApp and Microsoft-LinkedIn transactions. Presently, such proposed legislation is pending approval by the Korean National Assembly. However, the proposed legislation will automatically be denounced due to closure of session of the National Assembly in May 2020.
In February 2019, the KFTC revised its Merger Review Guidelines in order to take into account “innovative markets” and “information assets (such as big data),” in the merger review process. The revision specified standards for defining the relevant market, calculating the market concentration and determining anti-competitive effects in reviewing M&A relating to industries based on innovation (ie, industries where innovation competition such as R&D is essential and occurs continuously), such as IT, and provided a more effective review of innovation reducing effects manifested in, for example, potential acquisition of competitors.
According to the revised KFTC Merger Review Guidelines, when a company acquires another company in the process of product R&D or that has accumulated a large amount of information assets, even if the acquiring company’s external market share in the relevant industry is not large, the M&A can still consider anti-competitive issues resulting from “innovation reducing effects” or the “monopolisation of information assets” in an innovation market. Thus, in reviewing M&A in the innovative industry (R&D intensive industries) or information assets industry (industries that accumulate a large amount of data such as mobile communications, SNS, and finance), the KFTC is now able to consider the characteristics of innovative markets in defining the relevant industry and reviewing anti-competitive effects (see 4.1 Substantive Test and 4.2 Markets Affected by a Transaction).
In February 2020,the KFTC imposed corrective measures in the case of Danaher Corporation’s acquisition of the biopharma business from General Electric Company. The KFTC ordered that either one of the two companies divest all of its assets related to eight biopharmaceutical processing products which raised monopolistic concerns according to Article 7.4 of the MRFTA (see 4.1 Substantive Test).
In 2019, the KFTC reviewed a total of 766 merger filings (amounting to KRW 448.4 trillion), and imposed administrative fines in 12 of those cases. KFTC reviewed a total of 127 foreign-to-foreign transactions, and a corrective measure due to a finding of anticompetitive concern was not imposed in any of these cases.
In 2018, the KFTC reviewed a total of 702 merger filings (amounting to KRW486.6 trillion), and imposed administrative fines in 25 of those cases. KFTC reviewed a total of 95 foreign-to-foreign transactions, and imposed remedies in Qualcomm’s acquisition of NXP and the Linde-Praxair merger.
In response to the fourth industrial revolution, such as the rise of IT, semiconductors and Internet companies, including Google and Facebook, the KFTC is preparing a merger review of “innovation markets” that reflects the currently unrealised value of “information assets.” As part of this effort, the KFTC recently revised the KFTC Merger Review Guidelines (see 4.1 Substantive Test, 4.2 Markets Affected by a Transaction and 9.1 Recent Changes or Impending Legislation).
The KFTC is currently reviewing the acquisition of Woowa Brothers, the largest food delivery app operator in South Korea, by Delivery Hero SE, a German food delivery service company (date of commencement: 30 December 2019). Issues such as monopolization of market, fee system and exclusivity of information are expected to be examined by the KFTC.
In addition, the KFTC is currently reviewing the business combination between Daewoo Shipbuilding & Marine Engineering and Korea Shipbuilding & Offshore Engineering (sub-holding company of Hyundai Heavy Industries Group’s shipbuilding business) (date of commencement: 1 July 2019), which is also being reviewed by the competition authorities of the EU, Japan, China and Singapore. The first approval was granted in Kazakhstan in October 2019.
The chairperson of the KFTC announced that changes in the industry due to the COVID-19 crisis are anticipated and that the KFTC would expeditiously review merger applications that lead to restructuring and market reorganisation.
Indeed, the KFTC has approved the acquisition of a 61.5% stake in Asiana Airlines by Hyundai Development Company on 3 April 2020, citing that there is no risk that the merger would limit competition in the market. Regarding the approval, the KFTC also commented in a statement that it conducted its investigation “as quickly as possible in view of the situation facing the aviation industry, which is struggling with COVID-19”.
Therefore, it is expected that the KFTC would continue to expeditiously investigate future M&A cases caused by the COVID-19 crisis. The KFTC, however, did not officially state its position with regard to the intensity of the investigations.
The Korea Fair Trade Commission (KFTC) has been at the global forefront in its competition law enforcement efforts, actively co-operating with foreign competition authorities, and maintaining a strong regulatory stance in reviewing and exercising control over transactions reportable under its merger control regime. In particular, while the KFTC has been active in the past in reviewing both horizontal and vertical transactions having a Korean component, it has now become increasingly stringent in its review of foreign-to-foreign transactions with possible domestic anti-competitive impact, and has tended to closely co-operate with foreign competition authorities in reviewing and structuring remedies for multi-jurisdictional transactions.
In 2019, the KFTC took a significant step forward in respect of merger activity in the IT and communications sector, for example, by introducing new merger review standards applicable to “innovation-based industries” (ie, R&D-intensive industries where competition is driven by technological innovation) and also by providing conditional clearance of a merger between IPTV networks and cable business operators after imposing behavioural remedies that include price increase restrictions.
In 2020, important decisions in the R&D-intensive industries are anticipated, including with respect to a transaction involving food delivery app companies. In spite of the challenges posed by the COVID-19 crisis, the KFTC’s review process has largely remained unaffected, and it is expected that the KFTC will review transactions intended to revitalise the economy in this time of economic downturn in a relatively expedited and less stringent manner.
Recent Trends and Developments in Korean Merger Control
Merger filings by numbers
The KFTC reviewed a total of 766 transactions in 2019, representing a 9% increase from the 702 transactions it reviewed in 2018, while the total value of the transactions reviewed in 2019 was KRW448.4 trillion, an 8% drop from KRW486.6 trillion in 2018. Out of the 766 transactions reviewed, 18 were subject to in-depth review, resulting in five transactions being found to have an anticompetitive effect in the relevant market and the KFTC ended up imposing behavioral remedies on these five transactions.
Merger filing by applicant
In 2019, the number of transactions reported by Korean companies (ie, transactions involving a Korean acquirer of a domestic or foreign company) rose to 598 from the previous year’s 570, while there was a drop in terms of transaction value from KRW43.6 trillion to KRW30.0 trillion.
On the other hand, the number of transactions reported by foreign companies (ie, transactions involving a foreign acquirer of a domestic or foreign company) in 2019 rose to 168 from 2018's 132, while there was a drop in total transaction value in the same year from KRW 443.0 trillion to KRW 418.4 trillion. Of these transactions, EU companies topped the list with a total of 11 transactions, followed by the USA with eight transactions and China with two transactions.
Inbound mergers and foreign-to-foreign mergers
Out of the 168 transactions reported by foreign acquirers in 2019, 41 involved acquisitions of Korean targets, while 127 involved foreign-to-foreign transactions. This represents a 10% increase (from 37 to 41) in the number of inbound transactions and a 34% increase (from 95 to 127) in the number of foreign-to-foreign mergers reported to the KFTC compared to the previous year. In terms of transaction value, 2019 saw an increase of 80% (from KRW5 trillion to KRW9.7 trillion) for inbound transactions and a decrease of 7% (from KRW438 trillion to KRW408.7 trillion) for foreign-to-foreign mergers.
Mergers by industry
Based on the type of industries involved in the merger, companies in the manufacturing sector and service sector accounted for 33.8% (256 transactions) and 66.2% (507 transactions), respectively, of the total number of reported transactions. The number of manufacturing sector transactions increased from 255 to 259, while the percentage of the total number of transactions decreased from 36.3% to 33.8%. Based on a further breakdown, the transactions reported in 2019 involved the following industries: machine/metal (12.4%), petrochemical/pharmaceuticals (8.6%), and electricity/electronics (8.0%). The service sector transactions increased both in terms of number (from 447 to 507) and percentage of the total number of transactions (from 63.7% to 66.2%), and involved the following service industries: financial services (24.3%), wholesale, retail and distribution (6.3%), and information, communications and broadcasting (5.9%).
Mergers by type of transaction
In terms of the type of transactions reported, 251 transactions (32.8%) involved stock deals, 214 transactions (27.9%) involved joint ventures, 152 transactions (19.8%) involved mergers, 81 transactions (10.6%) involved asset deals, and 68 transactions involved interlocking directorships.
Amendment to merger review guidelines
The KFTC recently amended its Merger Review Guidelines by introducing the concept of an “innovation market” for market definition purposes and new review standards applicable to “innovation-based industries”.
Innovation market definition
Recognising that the traditional methods of defining relevant products markets and standards of review may not adequately address anticompetitive concerns arising from transactions in R&D-intensive industries, the amended Merger Review Guidelines provides that for purposes of determining the relevant market, a new “innovation market” may be defined as including one company’s R&D activities which are closely interchangeable or substitutable with the R&D activities of another company or interchangeable or substitutable with the manufacturing and sales activities of another company. For example, if a company engaged in the manufacture and sales of a certain medical drug plans to acquire a start-up company that is not yet engaged in any manufacturing or sales activities but is in the final stages of developing a new competing drug, the merger may be considered to be a horizontal merger with the acquiring company and target company deemed to be involved in the same relevant market by virtue of such activities, albeit the fact the target company has yet to manufacture or sell the competing drug.
New review criteria for innovation market
As it may not be possible to use sales turnover or market share data in determining the level of market concentration resulting from a merger in the innovation market as one or more of the merging entities may not have started manufacture or sales of the relevant product, different criteria will need to be used to measure market concentration. Thus, the amended Merger Review Guidelines provide that such factors as the parties’ R&D expenditure, R&D related capability and assets, size of patent portfolio and number of active participants in the innovation market should be considered in determining market concentration.
In addition, in assessing the proposed merger’s impact on competition in the innovation market, such factors as the following are to be considered: whether the merging parties are important players in the relevant innovation market; the similarity and proximity of the parties past and current R&D activities; and whether there will be a sufficient number of competing innovators remaining in the innovation market after the merger.
Major decisions of 2019
In 2019, remedies were imposed in the following five merger cases: SKT and Contents Alliance Platform, Global Taxfree and KTis, Dongbang and Sunkwang, LG U+ and CJ Hello, and SKT and TBroad. It is worth noting that all remedies were behavioral remedies as opposed to structural remedies which is the default form of remedy under the Merger Review Guidelines. In comparison, there were three remedy cases in 2018 (two structural and one behavioural), four in 2017 (one structural and three behavioural), four in 2016 (three structural and one behavioural), and eight in 2015 (one structural, seven behavioural - including one consent decree arrangement involving a behavioural remedy).
In 2019, administrative fines totalling KRW212.6 million were imposed in relation to 12 transactions for failure to file or a late filing of the merger notification.
Merger of SKT’s Oksusu and POOQ, a VOD platform jointly owned by three terrestrial broadcasters (KBS, MBC and SBS)
The KFTC conditionally approved the merger of mobile carrier SK Telecom’s video streaming app Oksusu and POOQ, a joint video-on-demand (VOD) platform jointly owned by three terrestrial broadcasters, KBS, MBC and SBS.
In reviewing the merger, the KFTC determined the relevant markets to be the subscription-based video streaming service market and the video streaming contents supplier market. The KFTC reviewed the video streaming service market and concluded that the transaction would not raise any anticompetitive concerns from a horizontal merger perspective after considering the ease with which subscribers could switch to competing video streaming services, the likelihood of global video streaming service providers entering the Korean market, the inability of the merged parties being able to unilaterally raise subscription fees, the difficulty of co-operation among competitors due to market characteristics, and the difficulty of monitoring compliance.
As to the video contents supply market, the KFTC found anticompetitive effect from a vertical merger perspective as it was determined that competing video streaming service providers would lose access to video streaming contents produced by the three terrestrial broadcasting companies as a result of the merger. Thus, the KFTC imposed the following behavioural remedies which were to remain in effect for a period of three years unless there is a change in the market that would justify a change or termination of the remedies:
Global Taxfree’s acquisition of KTis
The KFTC conditionally approved the merger between Global Taxfree, the number one tax refund service provider in Korea, and KTis, a tax refund service provider subsidiary of KT, a major Korean mobile carrier.
The KFTC found that the merger would have an anticompetitive effect in the Korean tax refund service market. The KFTC determined that competition would be reduced in the relevant market with an increased probability, post-merger, of the merged companies increasing prices and also an increased likelihood of collusion among competitors in the market.
To resolve such anticompetitive concerns, the KFTC, as a condition to its clearance of the proposed transaction, imposed the following behavioural remedies which were to remain in effect for a period of five years unless there is a change in the market that would justify a change or early termination of the remedies:
Joint venture company establishment by four stevedoring companies
The KFTC conditionally approved the merger involving the establishment of a joint venture company (Newco) by four stevedoring (loading and unloading of cargo to and/or from a ship) companies, including Sun Kwang and Dongbang.
Under the proposed transaction structure, Newco would manage the facilities of the new Incheon Port International Passenger Terminal under a 30-year lease received from the Incheon Port Authority and in turn would sublease parts of such facilities to the four merging parties for their stevedoring businesses.
The KFTC found that the merger would have an anticompetitive effect in the Incheon port automobile ferry terminal stevedoring market. The KFTC determined that competition would be reduced in the relevant market with an increased probability, post-merger, of the merged companies increasing prices and also an increased likelihood of information sharing leading to tacit collusion among competitors in the market.
To resolve such anticompetitive concerns, the KFTC, as a condition to its clearance of the proposed transaction, imposed the following behavioural remedies which were to remain in effect for a period of five years unless there is a change in the market that would justify a change or early termination of the remedies:
LG U+’s acquisition of CJ Hello
The KFTC conditionally approved the merger of LG U+, a mobile carrier and IPTV (internet protocol television) service operator, and CJ Hello Co, Ltd, the primary cable TV operator in Korea. The transaction was structured as a stock deal through which LG U+ acquired a majority equity stake in CJ Hello, after which LG U+ together with CJ Hello as an affiliate became Korea’s second largest pay TV service provider.
The KFTC found that the merger would have an anticompetitive effect in the market for the so-called 8-level vestigial sideband service (8VSB) which allows consumers who only signed up for analog broadcasting to receive digital content. The KFTC determined that competition would be reduced in the relevant market with increased barriers to entry, as cable TV operators would now also need IPTV service capability to effectively compete in the market, in addition to the increased probability, post-merger, of the merged companies increasing subscription rates.
To resolve such anticompetitive concerns, the KFTC, as a condition to its clearance of the proposed transaction, imposed the following behavioural remedies which are to remain in effect until 31 December 2022:
SKT’s acquisition of TBroad
The KFTC conditionally approved the merger of SK Broadband, a fixed broadband subsidiary of SKT, and Tbroad, a cable TV operator. Through the merger, the combined entity became Korea’s third largest pay TV service provider after KT and LG U+.
The KFTC found that the merger would have an anticompetitive effect in the market for 8VSB services and paid digital TV, and thus imposed remedies similar to the remedies imposed on the LG U+/CJ Hello transaction described above.
Merger Control Outlook for 2020
KFTC 2020 work plan
The KFTC announced in its 2020 work plan that it would focus efforts in four merger control policy areas in order to create an industrial ecosystem that promotes innovation in new growth industries.
First, the KFTC plans to review mergers with a greater focus on dynamic efficiency and prevention of consumer harm. Particularly in respect of emerging industries such as online food delivery service platforms, it intends to conduct a more comprehensive merger review based on surveys, economic analysis, and external experts’ opinions.
Second, the KFTC is considering to further encourage merging parties to make use of voluntary request for review prior to the official -merger filing to shorten the review period by reducing the time required in a formal review for assessing market conditions and reviewing merger supporting documents and data.
Third, the KFTC is considering adding a transaction value test to the existing merger notification determining thresholds in order to bring within its review regime mergers in emerging industries that significantly impact competition in the Korean market but are not captured by the existing merger notification thresholds based on total turnover and assets.
Fourth, the KFTC is planning to introduce new legislation to exempt transactions which are clearly for investment purposes only. The exemption would apply to investments that do not raise anticompetitive concerns, such as venture capital investments in start-ups and establishment of private equity funds.
Merger control outlook
The KFTC will be reviewing a number of megamerger deals this year, including Hyundai Heavy Industries’ acquisition of Daewoo Shipbuilding & Marine Engineering, both global players in the shipbuilding industry, and Germany-based food delivery company Delivery Hero’s acquisition of Korea’s top food delivery app operator Woowa Brothers for an estimated USD4 billion.
It is expected that M&A activity in Korea will steadily increase across all industries as companies attempt to respond to the continuing uncertainties in the global markets by implementing restructuring efforts which focus on securing sustained growth businesses. In response to such change, the KFTC is expected to expedite the merger review process for transactions that do not raise anticompetitive concerns, so that clearance can be provided within 20 days (not counting the days required for applicants to respond to the KFTC’s requests for information) to the extent possible.
On 1 April 2020, the Chairperson of the KFTC made a public statement that as companies and entire industries seriously impacted by the COVID-19 crisis are expected to engage in restructuring and reorganisation efforts, the KFTC intends to institute a more expedited merger review process for transactions implemented for such purpose. In line with such statement, the KFTC provided clearance of a major transaction involving Jeju Air’s acquisition of Easter Jet on 23 April 2020, a little over a month after the merger filing. The KFTC quickly cleared the transaction under the “failing firm” argument on account of the extreme difficulties faced by Easter Jet and the airline industry in general due to the COVID-19 crisis.
The KFTC in this case determined that Easter Jet, which was already in serious financial difficulty, having operated with impaired capital since 2013, would not be able to survive the COVID-19 crisis. In light of this new development, it is anticipated that the KFTC will likely be more willingly to accept the failing firm defence with respect to transactions prompted by the COVID-19 crisis.