Maximize Shareholder Value: Activist Investor Strategies In Korea

• Published date: 07 November 2022
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Shareholders
• Law Firm: Kobre & Kim
• Author: Mr Robin J. Baik, Daniel S. Lee, John Han, Daniel J. Saval and Kunhee Cho

Recent developments have made Korean family conglomerates known as chaebols increasingly attractive to overseas activist investors. Succession of family control of chaebols and heavy inheritance tax burden dilute ownership, which increases openness to foreign investors. The government has also pushed for reforms, including recent amendments to the Korean Commercial Code in favor of minority shareholders, and major Korean institutional investors have adopted stewardship codes.

However, the intricacies of the Korean capital market and legal practice, combined with still overwhelming influence of the chaebol companies over the market and economy generally, mean activist investors need to tread carefully. Only by engaging in creative strategies that take both local and overseas factors into consideration do investors have the greatest chance of success.

#1: Find Your Allies

The more shareholders unite, the more pressure this creates for controlling shareholders. Many pension funds and mutual funds hold significant stakes in companies, but they have historically been passive when it came to shareholder votes and activist campaigns. In recent years, many of these traditionally passive institutional investors publish and emphasize voting guidelines or investment philosophies, the market has developed more visibility as to what values these investors hold important by looking at the 'trigger words,' which in turn enables activist shareholders to adopt as they develop their proposals, potentially leading to more support from these traditionally quiet players. For example, Korea's National Pension Service ('NPS') - one of the biggest investors in the world, adopted its Stewardship Code in 2018 and have since been open to taking a more open approach, focusing on shareholder value.

In addition, the success of overseas activist campaigns has led to the launch of Korean activist funds. There are at least dozen Korea-based activist funds focusing on Korean capital market and they have led local activist campaigns over the past several years. Joining forces with these local activist funds often benefit both sides in different ways.

While retail investors are typically not the core target audience in many activist campaigns, some level of mass media outreach can be fruitful, particularly in close votes. Publicity from retail investors may also create pressure on key local shareholders, and vice versa, setting off a positive feedback loop. This makes it especially...