What Is a Tender Offer — Why Korea Is Bringing Back Mandatory Tender Offers After 27 Years

The Controlling Shareholder Got a Premium. Everyone Else's Stock Just Sat There.

When a company's controlling shareholder announces they're selling control, that block of shares almost always changes hands at a price well above the market. The stock held by everyone else in the same company, meanwhile, usually just keeps trading at the same market price it always did — untouched by the deal happening right next to it. The controlling shareholder walks away with a premium for handing over the company; the rest of the shareholders, who own the same company, see none of it. Korea's proposed mandatory tender offer rule exists to close exactly that gap. As covered in the holding company discount, circular shareholding, and the treasury stock loophole, the mismatch between controlling and minority shareholders' interests has been a long-running theme in Korean markets — and this rule targets one specific moment in that mismatch: the instant control actually changes hands. This lesson walks through what a tender offer is, how the proposed mandatory rule is designed to work, and why it was tried once in 1997, scrapped a year later, and is only now coming back after a 27-year absence.

What a Tender Offer Actually Is

A tender offer (also called a takeover bid) is a method of buying shares where the buyer publicly announces a price, a deadline, and a target quantity in advance, then invites any and all shareholders to tender their shares — all executed off the regular exchange. That's fundamentally different from ordinary market buying. Someone accumulating shares through the exchange can build a position quietly, without the market necessarily noticing (though crossing 5% ownership does trigger a disclosure requirement). A tender offer works the opposite way: the buyer discloses "this price, by this date, for this many shares" before the buying even starts, which makes it a far more transparent process. To actually get shareholders to tender, the buyer typically has to offer a premium over the recent market price — without one, a shareholder would rather just sell on the open exchange whenever they choose.

Tender offers aren't used for only one purpose. The best-known case is an acquirer trying to gain control of a company, sweeping up both the controlling stake and shares held by the public. But a controlling shareholder who already has control can also use a tender offer to buy out remaining minority holders as part of a going-private delisting, and a company itself can run a tender offer as a form of share buyback. This lesson focuses on the first case — a tender offer tied to a change in control.

Why the Control Premium Went Only to the Controlling Shareholder

When an acquirer buys a controlling shareholder's stake, it doesn't pay the plain market price. Gaining control means gaining the company's actual decision-making power, plus whatever value comes from redirecting the business or capturing synergies with other affiliates — and the acquirer pays extra for that control itself. This is generally called the control premium, and real-world deals often get described as paying somewhere in the 20–40% range over market price, though that's best treated as a loose rule of thumb rather than a fixed rate, since it varies enormously deal to deal.

The problem is that this premium has historically applied only to the block the controlling shareholder sold — not to a single share held by anyone else in the same company. There was simply no reason for an acquirer to voluntarily pay minority shareholders the same premium if nothing required it. The result: the controlling shareholder collects a premium for handing over the company, while everyone else watches a change of control happen and can still only sell at the ordinary market price — while also absorbing all the risk that the new owner's direction might not serve their interests. That risk came with no compensation beyond the market price they could already get.

The Mandatory Tender Offer Rule — the 25% Threshold and the Buy-Up Obligation

The proposal on the table to fix this imbalance is the mandatory tender offer. The core idea is simple: if you're acquiring enough shares to take control, you can't just buy the controlling block and stop there — you have to give ordinary shareholders the same chance to sell at the same price. As currently discussed in Korea's National Assembly, the outline works like this: if an acquirer buys 25% or more of a listed company's shares and becomes its largest shareholder, they take on an obligation to keep buying — via tender offer, at the same price — from remaining shareholders until they hold 50% plus one share of total shares outstanding. In other words, once a purchase from the controlling shareholder alone crosses the 25% line, the acquirer must publicly offer everyone else the same deal: sell at the same price the controlling shareholder just got.

It's worth noting that ordinary shareholders aren't required to tender. Anyone who wants to stay invested under the new ownership can simply hold their shares. What the rule adds is a choice that didn't exist before — an option to cash out at the same premium price as the controlling shareholder, for anyone who'd rather do that. Exactly how the final rule handles edge cases and exceptions will depend on the bill's final passage and the implementing regulations that follow, so the 25% / 50%-plus-one figures below should be read as the current outline under discussion, not settled law.

A Worked Example

Take a hypothetical Company X with 10 million shares outstanding, currently trading at ₩10,000. Controlling shareholder A holds 30% (3 million shares), and Acquirer B agrees to buy that stake at ₩16,000 per share — a 60% premium over the market price.

Item	Value
Total shares outstanding	10,000,000
Market price	₩10,000
Deal price (Shareholder A → Acquirer B)	₩16,000
Controlling block B acquires	3,000,000 shares (30%)
Mandatory tender target (50%+1 minus 30%)	~2,000,000 shares (~20.0pp)

The moment B buys the 30% block from A, B crosses the 25% threshold and becomes the largest shareholder — triggering the obligation to keep buying, via tender offer, up to 50% plus one share, or roughly 5,000,000 shares in total. Having already secured 3,000,000, B must now offer to buy roughly 2,000,000 more shares from ordinary shareholders at the same ₩16,000. If most of them tender, B needs to fund not just the ₩480 billion for the controlling block (3,000,000 × ₩16,000) but potentially another ~₩320 billion (2,000,000 × ₩16,000) on top of it — a substantial jump in the total capital the deal requires. For an ordinary shareholder, the flip side is real: a stake that could previously only be sold at ₩10,000 on the open market now has a shot at ₩16,000 instead.

A 27-Year Gap — Introduced in 1997, Scrapped in 1998, and Now Coming Back

This isn't actually the first time Korea has had a mandatory tender offer rule. One was introduced through a 1997 amendment to the Securities Exchange Act. Then, before the year was even out, the Asian financial crisis hit and Korea entered an IMF bailout program. Under pressure to accelerate corporate restructuring and clear the way for foreign capital to acquire distressed companies quickly, the rule was scrapped just a year later, in 1998 — the reasoning being that letting acquirers buy only the controlling stake made it easier to move troubled companies to new owners fast.

For roughly the next 27 years, Korea's capital markets had no mandatory tender offer requirement at all. Over that stretch, cases kept recurring where controlling shareholders collected a premium on control sales while ordinary shareholders were left out entirely, and academics and civic groups steadily pushed for the rule's return. That push gained real momentum in the 2020s, and from 2025 onward the Financial Services Commission and the National Assembly began turning it into a concrete Capital Markets Act amendment. As of this writing, in August 2026, the bill has already cleared the National Assembly's National Policy Committee and its Legislation and Judiciary Committee, with only a final plenary vote and the drafting of implementing regulations left. In other words, it is not yet in force, and the exact final rules could still shift before that process wraps up. If you're reading this at a later date, check current reporting or the Financial Services Commission for where things actually stand.

How This Would Change the M&A Landscape

If the rule takes effect, it's expected to reshape several parts of how M&A deals get done in Korea. The most immediate effect is cost: as the example above shows, an acquirer now needs far more capital than buying just the controlling block, which gives cash-constrained buyers an incentive to either walk away or structure deals to stay under the 25% threshold. Advisory firms reportedly saw a rise in inquiries about workaround structures as the bill's passage started looking likely. A second effect touches governance restructuring more broadly — unwinding circular shareholding or converting to a holding-company structure often involves crossing exactly the kind of ownership thresholds this rule targets, so companies planning such moves now need to factor it in. The third effect favors minority shareholders directly: when control changes hands, ordinary shareholders would finally get a shot at the same premium price the controlling shareholder received, at least in that specific moment.

What to Check as an Investor

If a holding announces a control sale or change in its largest shareholder, first check whether the deal meets the mandatory tender offer threshold (once the rule is actually in force, that means 25%-plus ownership by the buyer). If it does, the filing should also disclose the tender price, window, and target share count — compare those terms against your own goal, whether that's holding through the ownership change or cashing out at the premium. It's also worth developing the habit of checking why a given tender offer is happening at all — a change-of-control acquisition, a company buyback, or a controlling shareholder's going-private delisting — since the premium and the likely path of the stock afterward differ substantially depending on which one it is. And because this rule has not finished its legislative process as of this writing, treat the "25%" and "50%-plus-one" figures circulating in the news as the current proposal, not a locked-in final number, until the bill actually passes and its implementing rules are set.

Takeaways

• A tender offer is a public purchase process where the buyer discloses price, deadline, and target quantity, then buys shares off-exchange from any shareholder who tenders — usually at a premium over the market price.
• Historically, the control premium in a takeover went only to the controlling shareholder's block; ordinary shareholders in the same company got none of it.
• Korea's proposed mandatory tender offer rule would require an acquirer who takes 25%-plus ownership and becomes the largest shareholder to keep buying, via tender offer at the same price, from remaining shareholders up to 50% plus one share.
• Korea introduced this rule in 1997 and scrapped it in 1998 amid the Asian financial crisis; it's now being reintroduced 27 years later, in 2025–2026.
• As of this writing (August 2026), the bill has passed the National Assembly's Legislation and Judiciary Committee but still needs a plenary vote and implementing regulations — check current status before relying on any specific figure.

FAQ

Is the mandatory tender offer rule already in effect?

Not as of this writing in August 2026. The relevant Capital Markets Act amendment has passed the National Assembly's National Policy Committee and Legislation and Judiciary Committee, but still needs a plenary vote and implementing regulations before it takes effect. The final effective date and detailed requirements will only be settled once that process finishes.

Does crossing 25% ownership automatically trigger the obligation?

The proposal currently under discussion centers on an acquirer taking 25%-plus ownership and becoming the largest shareholder, but the exact conditions and any exceptions will be set by the final bill and its implementing regulations. Whether a specific deal is covered should be judged against whatever law is actually in force at that time.

Does a tender offer always mean a change of control?

No. Tender offers are also used by a company buying back its own treasury shares, or by a controlling shareholder who already holds control buying out remaining minority shareholders to take the company private. When you see a tender offer announcement, check what it's actually for before drawing conclusions.

⚠️ This article is for informational purposes only and is not investment advice. The mandatory tender offer rule discussed here is, as of this writing, still moving through the legislative process — whether and how it ultimately takes effect could change. You are solely responsible for your own investment decisions and their outcomes.