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Amended KFTC Merger Control Rules Take Effect
- Specific Size-of-Transaction Test Established and Scope of Simplified Review Expanded

On Dec. 30, 2021, amended merger control rules went into effect in Korea. These amended rules are codified under four separate sets of legal provisions: the Monopoly Regulation and Fair Trade Act (MRFTA), the Enforcement Decree of the MRFTA (Enforcement Decree), the KFTC Merger Filing Guidelines (Merger Filing Guidelines), and the KFTC Merger Review Standards (Merger Review Standards). The amended Enforcement Decree and the amended Merger Filing Guidelines establish specific rules on determining the “transaction size” and the presence of a “substantial local nexus” while also providing for online filing for certain few qualified “simplified form” notifications. The amended Merger Review Standards, on the other hand, expand the types of transactions for “simplified review.”

1. Summary of Amended Merger Filing Guidelines

A. Size-of-Transaction Test

The MRFTA, the Korean antitrust statute, was amended in December 2020 to provide for, among others, an alternative “transaction value-based” test for determining the reportability of a transaction. This new test addresses concern that the existing size-of-party (size of assets and turnover) test fails to capture many acquisitions targeting start-ups that have yet to generate substantial sales but have great growth potential and competitive significance. Under the new alternative test, even if the target of a transaction does not satisfy the size-of-party test, i.e., KRW 30 billion (approx. USD 25 million) in worldwide assets or turnover, if the “transaction value or size” is KRW 600 billion or greater and the target demonstrates a substantial growth potential, such as by the ownership of important patent(s), then the acquisition of the target will be reportable. To that end, the amended Enforcement Decree and the amended Merger Filing Guidelines establish more concrete rules on determining the transaction size and the presence of a substantial local nexus (see Section V of the amended Merger Filing Guidelines).

i. Determining “Transaction Size”
Section V.1 of the amended Merger Filing Guidelines establish the following rules for determining the value of a transaction for each type of applicable business combinations.

ii. Determining “Substantial Local Nexus”
Under the amended Enforcement Decree, the target of a transaction has substantial Korean nexus in case of the following: (1) within the three years preceding the transaction, the target sold products or provided services to at last one million people in Korea in a single month during the period, or (2) within the three years preceding the transaction, the target (i) has leased Korean R&D facilities or has utilized Korean research personnel, and (ii) had an annual “related budget” of at least KRW 30 billion as spent and recognized as such on its financial records in any of the three years. The amended Merger Filing Guidelines further expand on the rules established by the amended Enforcement Decree.

B. Certain Few “Simplified Form” Filings to Be Made Online (to be distinguished from “simplified review” discussed below)

Since transactions qualifying for a “simplified form” filing1) do not require the submission of a substantial amount of information for the KFTC’s review, a “simplified form” filing is to be made online (http://mna.ftc.go.kr) as a general principle (Section II. 3. of the amended Merger Filing Guidelines).

2. Summary of Amended Merger Review Standards

The amended Merger Review Standards expand the scope of “simplified review” (as distinguished from “simplified form” notifications) to ease the burden on companies with respect to transactions lacking substantial anticompetitive concern and to concentrate the KFTC’s resources on transactions presenting substantial anticompetitive concern. Specifically, the amended Merger Review Standards now provide for simplified review for (i) all types of real estate acquisitions by real estate investment trusts (REITs) whereas the previous rules provided for simplified review only when the acquisitions were clearly for passive investment\\\; and (ii) all types of foreign-to-foreign transactions with no domestic impact whereas the previous rules provided for simplified review only for the joint formation of a new JV entity category of transactions.

3. Implications

The amended rules provide for concrete and useful guidance on the new alternative transaction valuebased test for determining the reportability of a transaction. In the process, they appear to close in advance a few potential loopholes or resolve ambiguities, particularly with respect to the scale of sales or services as applied to an SNS or other Internet-based service provider.

In addition, the amended rules are designed to provide for a more efficient merger control regime in Korea by facilitating both filings and review of transactions that do not present substantial anticompetitive concern. However, whether they will actually reduce the KFTC’s review time in practice might be a separate issue. Furthermore, as with any new rules, some uncertainties, novel issues, and unforeseen developments will inevitably emerge. Thus, it remains to be seen how the KFTC will enforce the amended rules in practice.

Legal Update, Yulchon LLC, Jan. 2022.

https://www.yulchon.com/en/resources/publications/legal-update-view/30913/page.do