[비즈한국] Companies sometimes make decisions that are difficult to explain based on money alone. Understanding the underlying laws and systems can help you grasp the details behind them. 'Business Law Tips (Al-Sseul-Bi-Beop)' introduces clues that help you understand business trends.
The merger review system is a mechanism that regulates corporate mergers that pose competition restrictions through a formal review process. A merger refers to the integration of companies that previously operated independently into a common control through capital, personnel, or organizational consolidation. Specific types include stock acquisitions, mergers, business transfers, establishment of new companies, and interlocking directorates.
In advanced capitalism, the most valuable commodity is a company. Therefore, trading companies in the market is natural, and corporate mergers are sometimes called the "flower of the market economy" in the sense that they contribute to economic development by increasing the efficiency of resource allocation. However, mergers can be used by certain companies to form or strengthen market dominance or to increase the possibility of collusion among competing businesses. For this reason, fair trade laws and regulations prohibit mergers that cause competitive restrictions in principle and impose a reporting obligation on companies that meet certain types and scale thresholds.
The Korea Fair Trade Commission (KFTC) also issues corrective measures against competition-restricting mergers in accordance with fair trade laws. However, in most cases reported to the KFTC, the restriction on competition is not substantiated, and the case is closed without any corrective measures. According to KFTC data, the number of reviews from 2021 to 2024 was 865, 1,113, 1,027, and 927 respectively, but the number of corrective measures imposed during the same period was only 2, 2, 2, and 3.
Corrective measures have a tremendous impact not only on the companies involved but also on the markets in which they operate, so the background and content of such cases naturally attract public attention. The KFTC's corrective measures are divided into structural and behavioral measures. Structural measures refer to actions that prohibit the merger itself or require the companies involved to divest assets or intellectual property rights to a third party. Behavioral measures refer to actions that restrict the business conditions, operating methods, scope of business, or internal management activities of the companies involved for a certain period.
According to relevant regulations, the KFTC prioritizes structural measures over behavioral ones in principle. This is because, unlike behavioral measures, which require ongoing monitoring costs, structural measures are effective in maintaining the market structure itself in a competitive state. However, structural measures have a greater impact on the market and cause more uncertainty compared to behavioral measures, which merely restrict business activities. Thus, in many actual cases, the process is concluded with only behavioral measures without structural ones.
A "competition restriction" means that the behavior of a business entity significantly reduces or has the potential to reduce the degree of competition in a specific market. From this perspective, if an act leads to a significant reduction in the number of competing businesses or blocks the entry of potential competitors, it can be viewed as an act that restricts competition.
Then, what about mergers between major players in an oligopolistic market? Since the number of major players has decreased and the market status of the merged entity has strengthened, it seems like an act that restricts competition and should be prohibited.
In particular, under the regulations, mergers that restrict competition are prohibited in principle. They are only exceptionally allowed under special circumstances, such as when the efficiency-enhancing effects (increased employment, regional economic development, industrial advancement, securing stable energy, environmental pollution improvement, etc.) are significant, or if the company cannot be rehabilitated without the merger. However, looking at various cases, it is rare for a merger between major players to be prohibited outright. They are often approved on the condition of various corrective measures.
In the case of Binggrae005180's acquisition of Haitai Ice Cream, approved by the KFTC in September 2020, structural or behavioral measures could have been imposed given that it was a merger between major players in the market. However, the KFTC approved it without any measures, citing: (1) the firm status of the No. 1 player, Lotte Group affiliates, and (2) the fact that substantial competition could be promoted in the market if a company struggling due to the shrinking domestic ice cream market seeks a chance for management normalization through the merger. This is a understandable conclusion considering that the market is shrinking due to a decline in the young generation, who are the main consumers of frozen confectionery products. This is expected to serve as a precedent for the ongoing merger case between Megabox and Lotte Cinema.
In the case of the merger between Korean Air and Asiana Airlines020560, it involved the No. 1 and No. 2, as well as the No. 4 (Jin Air), No. 6 (Air Busan), and No. 8 (Air Seoul) domestic carriers, and the 44th and 60th largest global carriers. Furthermore, the fact that there were 119 overlapping routes made the question of competition restriction a key issue. While some argued against the merger on the basis that Asiana Airlines could survive on its own, the merger was ultimately approved on the condition of implementing structural and behavioral measures.
Of course, it is not as if there are no cases where a merger was prohibited. A representative example is Korea Shipbuilding & Offshore Engineering (Hyundai Heavy Industries Group) withdrawing its merger report with Daewoo Shipbuilding & Marine Engineering in January 2022. That merger drew global media attention from the start, as the No. 1 player in the global shipbuilding market was acquiring the No. 4 player.
In particular, the merger would have secured a 61.1% market share in the global LNG carrier market, creating a monopoly, which sparked further controversy as LNG is directly tied to the energy security of European countries. In the end, the European Commission disapproved the merger, and the KFTC reached a similar conclusion, leading to the withdrawal of the merger report. Subsequently, Daewoo Shipbuilding & Marine Engineering was acquired by Hanwha Group in April 2023.
A merger is one of the most important management decisions. Since timeliness is key, it is difficult to challenge a disapproval or sanction from regulatory agencies once it is handed down. In the case of large-scale mergers, they are often approved on the condition of corrective measures considering the national economy, but there is inherent uncertainty as there are occasional cases of disapproval.
Although not always visible on the surface, the merger review system is also used as an informal trade barrier, a means of complementing regulations, and a bargaining chip for industrial policy. While regulatory authorities do not cite these as reasons for approval or disapproval, one can speculate on the background by reading between the lines and the nuances of media reports.