Ruling Democratic Party of Korea lawmaker Yu Dong-su of Incheon's Gyeyang-gu Gap, who leads the task force (TF) to resolve the MBK Homeplus situation, has introduced a Commercial Act amendment that would block structures in which a subsidiary merges with its parent company and assumes excessive debt. The aim is to institutionally improve "eat-and-run mergers and acquisitions (M&A)" conducted through private equity funds' leveraged buyouts (LBOs). The bill is being called the "MBK prevention act," as it takes direct aim at MBK Partners, the private equity manager blamed for triggering Homeplus' corporate rehabilitation.
According to the National Assembly on the 16th, Yu introduced the "Partial Amendment to the Commercial Act" on the 15th. The current Commercial Act, as a rule, prohibits a company from acquiring its own shares but allows exceptions when there is a managerial need such as a merger. However, critics have consistently noted repeated cases in which this was abused so that a subsidiary absorbed its parent company and took on acquisition funds.
The amendment would remove from the own-share acquisition exceptions any case where, in a merger of a subsidiary with its parent company, the subsidiary succeeds to debt above a certain ratio (an amount calculated by multiplying its own net worth by a ratio set by presidential decree). If a subsidiary is to assume parent-company liability above a certain scale, the merger itself would be blocked.
Observers say the bill is aimed squarely at MBK Partners, a private equity manager. If passed, it could affect the LBO method that private equity funds have used when acquiring domestic corporations. An LBO (leveraged buyout) is a method in which a special purpose company (SPC) established for the acquisition borrows funds using the target corporations as collateral and then uses those funds to acquire the corporations. Typically, after the acquisition, the acquired corporations and the acquiring entity (SPC) are merged, leaving the acquired corporations to shoulder the acquisition liability.
A representative example is MBK Partners' 2015 acquisition of Homeplus. MBK acquired Homeplus for a total of 7.2 trillion won, covering more than 4 trillion won of that with borrowings such as loans in Homeplus' name and acquisition financing loans. Immediately after the acquisition, Homeplus' liability ratio surged, and amid falling sales and a cash crunch, the company ultimately filed for corporate rehabilitation, drawing intense criticism. Yu's bill seeks to fundamentally block this type of corporations acquisition.
The political sphere is demanding that MBK take responsible steps to resolve the Homeplus situation. MBK Partners Chair Kim Byung-ju appeared at the National Policy Committee's parliamentary audit on the 14th and bowed, saying, "We will fulfill our social responsibility," but did not present a concrete rehabilitation plan. The Democratic Party of Korea, while urging financial authorities to impose strict sanctions on MBK, also directed the National Pension Service to review recovering its investment, signaling a hard-line response.