Capital Markets Rules Change on Merger Value Expected to Boost Fairness and Prevent Price Distortion

The Financial Services Commission (the FSC) announced that the National Assembly passed a proposed amendment to the Financial Investment Services and Capital Markets Act (the FSCMA) at the plenary session held on August 20, which alters the method for calculating merger value of listed companies. Under the current FSCMA and its subordinate statutes, the merger price between listed companies and their affiliates is determined based on the market value approach which has led controlling shareholders who want to set more favorable merger conditions to intentionally choose the time of merger process when the market value of the affiliates stays below its fair value, thereby suppressing the stock price of the affiliates. In this regard, the Proposed Amendment will make changes to the valuation standard for mergers from the market share price to a fair value evaluation, bolstering the procedural mechanisms intended to ensure fairness in corporate restructuring activities. Key Revision Details Introducing fair value approach Firstly, under the Proposed Amendment, when a listed company enters into a merger, a spin-off or split and merger, an acquisition or transfer of a significant busi...