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Inclusion of affiliates under the Fair Trade Act in acquisitions of foreign entities

We advised our client on the structure of a transaction that may result in an overseas subsidiary of a client not being included as the client’s affiliate under the Act on Monopoly Regulation and Fair Trade (the “Fair Trade Act”). If the overseas affiliate were to be deemed an affiliate under the Fair Trade Act, the companies would be subject to various mandatory disclosures and other obligations as certain groups of companies are restricted from mutual investment under the Fair Trade Act. The client, which was in a group of companies restricted from mutual investment, wanted to acquire approximately 30 per cent of the shares of an overseas entity through a share subscription agreement, and then exercise a call option on the majority shareholder’s shares to consequently acquire more than 50 per cent of the shares of the overseas entity. In connection with this transaction, our firm assisted the Company in obtaining various consents and consultation rights under the respective investment agreements, as well as reviewed the terms and conditions for exercising the call option, including the period and quantity of the call option for the majority shareholder of the overseas entity. We further reviewed the possibility that the client would be included as an affiliated company due to its dominant influence over the overseas entity, and proposed a transaction structure that would prevent the overseas entity from being included as an affiliated company due to de facto control.