On October 28, 2020, the Capital Markets Board (“CMB“) published the Draft Communiqué on Squeeze-Out and Sell-Out Rights (“Draft Communiqué“) to replace the current communiqué on squeeze-out and sell-out rights.
Under the Draft Communiqué, the most significant changes are the decrease of the squeeze-out threshold from 98% to 95% and the equalization of the prices applicable to squeeze-out and sell-out rights.
For a public company listed on the stock exchange, the squeeze-out and sell-out price will be calculated according to the market in which its shares are traded.
A tender offer obligation will not be triggered if the management control of the public company is acquired simultaneously with the squeeze-out and sell-out rights being triggered.
Acquisition of new shares by the current shareholders as a result of a bonus or pre-emptive rights issue will not trigger squeeze-out and sell-out rights.
What Does the Draft Communiqué Say?
• Squeeze-Out Threshold: Under the Draft Communiqué, a shareholder or shareholders acting in concert holding equal to or more than 95% of the voting rights of a public company (i.e., controlling shareholder) will have the right to squeeze-out the minority shareholders.
The sell-out rights of the minority shareholders will be triggered at the same time when the squeeze-out right is triggered.
Unlike the current communiqué, the same formula will apply for the calculation of the price for squeeze-out and sell-out rights.
Accordingly, in respect of the public companies traded on the stock exchange, the price will be determined as the highest of the following:
The price to be indicated in the valuation report will be taken as basis for the public companies that are not traded on the stock exchange.
In cases where a person acquires the controlling shareholder status prior to the entry into force of the Draft Communiqué, the current communiqué’s price calculation methodology will apply.
With the Draft Communiqué, the CMB seemingly aims to facilitate squeeze-out procedures in companies with low floating ratios.