Acquisition of Korean Companies by Foreign Companies

When a foreign company acquires a Korean company or establishes a joint venture (JV) in Korea as part of a cross-border M&A transaction, one area that can pose significant management risk—alongside tax, labor, and general legal due diligence—is the business combination filing requirement administered by the Korea Fair Trade Commission (KFTC).

The Monopoly Regulation and Fair Trade Act of Korea (the “MRFTA”) requires parties to certain business combinations exceeding specified thresholds to file a notification with the KFTC either before or after closing in order to prevent market concentration and maintain fair competition. Importantly, even where the acquiring party is a foreign company, the MRFTA may apply if the transaction has a sufficient nexus to the Korean market.

Failure to obtain the required clearance or comply with the applicable filing procedures may result in substantial administrative fines and corrective measures and may also jeopardize the closing of the transaction. Accordingly, KFTC merger control should be carefully considered from the early planning stages of any cross-border M&A transaction.

1. Criteria for Determining Whether a Business Combination Filing Is Required

In determining whether a foreign company’s acquisition of a Korean company is subject to a KFTC filing, three principal factors should be considered: (i) the size of the parties to the transaction, (ii) their nexus to the Korean market, and (iii) the type of business combination.

① Asset and Revenue Thresholds

Under the MRFTA, a business combination filing obligation generally arises where the parties to the transaction satisfy the following financial thresholds. For purposes of determining the size of each party, the assets and revenues of the relevant company are generally calculated on a group-wide basis, including its affiliates.

Basic financial thresholds: One party to the business combination has total assets or annual revenue of KRW 300 billion or more, while the other party has total assets or annual revenue of KRW 30 billion or more.

Foreign company Korean revenue threshold: Where either the acquiring or acquired party is a foreign company, the relevant foreign company’s revenue generated in Korea during the immediately preceding fiscal year must be KRW 30 billion or more for the transaction to trigger a filing obligation in Korea.

Even in an M&A transaction solely between foreign companies, a KFTC filing may be required where each party generates Korean revenue of at least KRW 30 billion.

② Korean Market Nexus: Transaction-Value-Based Filing Requirement

The transaction-value threshold was introduced to prevent acquisitions of high-value technology startups and emerging companies from escaping merger review merely because the target does not meet the conventional asset or revenue threshold of KRW 30 billion.

Even where one party has assets or revenue of at least KRW 300 billion and the other party falls below the KRW 30 billion threshold, a filing may nevertheless be required if the following conditions are satisfied:

Transaction value threshold: The total transaction value, including the purchase price for the shares and assumed liabilities, is KRW 60 billion or more.

Substantial activities in Korea: The target company engages in a meaningful level of business activity in the Korean market.

③ Types of Transactions Subject to Filing

Where the applicable financial thresholds are satisfied, a filing obligation may arise in connection with the following five types of business combinations:

Type of Transaction	Filing Trigger
Acquisition or ownership of shares	Unlisted company: acquisition of 20% or more of the voting shares. Listed company: acquisition of 15% or more of the voting shares. This may also apply where the acquirer becomes the largest shareholder or an existing shareholder increases its ownership through an additional capital increase.
Interlocking directorates	Where a representative director is concurrently appointed or 50% or more of the directors concurrently serve as directors of the other company. This requirement applies to large companies.
Merger	A statutory merger with another company.
Acquisition of business	Acquisition of all or a substantial part of another company’s business or acquisition of business-related fixed assets.
Establishment of a joint venture (JV)	Acquisition of 20% or more of the shares of a newly established joint venture while becoming its largest shareholder.

2. Filing Timing and KFTC Review Process

Business combination filings are divided into pre-closing and post-closing filings depending on the size of the parties. The applicable filing timing can have a significant impact on the overall M&A timetable.

Pre-Closing Filing

Applicable transactions: Transactions involving at least one “large company” with total assets or annual revenue of KRW 2 trillion or more.

Filing deadline: Following execution of the Share Purchase Agreement (SPA), the transaction must be notified to and cleared by the KFTC before the transaction is ultimately completed, including payment of the purchase price and completion of the relevant registrations.

Prohibition on gun-jumping: The parties must not substantially consummate or implement the business combination before obtaining final KFTC clearance, including by paying the purchase price, appointing directors, or exercising management rights.

Post-Closing Filing

Applicable transactions: Transactions where neither party qualifies as a large company with assets or annual revenue of KRW 2 trillion or more.

Filing deadline: The notification must be submitted to the KFTC within 30 days from the date on which the business combination is completed, such as the payment date for the shares or completion of the business transfer.

KFTC Review Period and Procedure

Initial review period: 30 days from the date the filing is received.

Extension of review period: Where the transaction is complex or raises competition concerns requiring an in-depth review, the KFTC may extend the review period by an additional 90 days, resulting in a maximum statutory review period of 120 days.

Requests for additional information: Where the KFTC requests supplementary information or documents, the period required for the parties to provide such materials is excluded from the statutory review period. Accordingly, the actual review process may take four to five months or longer.

3. Sanctions and Legal Risks for Non-Compliance

Failure to comply with the business combination filing requirements under the MRFTA, or proceeding with a transaction before obtaining required clearance, may expose both the foreign company and its Korean subsidiary to administrative and legal sanctions.

Administrative Fines

Failure to file or late filing: If the parties proceed to closing before obtaining required pre-closing clearance, or fail to submit a post-closing filing within the applicable 30-day period, an administrative fine of up to KRW 100 million may be imposed.

False filings: An administrative fine of up to KRW 100 million may also be imposed where material financial information, market-share data, affiliate information, or other relevant information is falsely reported.

Corrective Measures

If the KFTC determines that a business combination substantially restricts competition in the relevant market—for example, by creating or strengthening a monopoly or increasing the likelihood of price increases—it may impose significant corrective measures, including:

• Divestiture orders requiring the disposal of all or part of the acquired shares to a third party;
• Orders requiring concurrently serving directors to resign or requiring the divestiture of an acquired business;
• Behavioral remedies, such as restrictions on price increases, requirements to publicly disclose the corrective order, or obligations to maintain certain supply arrangements; and
• Enforcement fines for failure to comply with corrective measures, as well as potential criminal penalties of imprisonment for up to three years or a fine of up to KRW 200 million.

Potential Impact on the M&A Agreement and Civil Liability

In a transaction subject to a pre-closing filing requirement, completing the transaction without obtaining KFTC clearance may potentially affect the legal effectiveness of the transaction. In addition, where KFTC clearance is expressly stipulated as a condition precedent under the SPA, failure to obtain such clearance may result in termination of the agreement and potentially significant contractual penalties or damages.

Conclusion

A business combination filing is not merely an administrative formality. It can constitute a critical condition precedent that directly determines whether an M&A transaction can proceed to closing.

Foreign investors should not assume that KFTC merger control is irrelevant simply because the Korean target has relatively limited revenue or market presence. The transaction-value-based filing regime may capture acquisitions of smaller but strategically valuable companies, while failure to comply with applicable filing requirements can result in substantial administrative fines and, in serious cases, divestiture orders.

Accordingly, foreign investors contemplating the acquisition of a Korean company or the establishment of a joint venture in Korea should assess Korean merger control requirements from the early stages of transaction planning and incorporate the KFTC filing and review process into the overall M&A timetable.