What is the essence of M&A, 'management rights'?

In mergers and acquisitions (M&A), managerial rights signify more than merely holding shares; they denote the authority to control a company's operations and decision-making processes.

In this column, we explore the definition and significance of managerial rights, and the strategic elements to secure managerial rights in M&A transactions.

1. Definition and Importance of Managerial Rights

Managerial rights refer to the authority to control a company's strategic direction, financial management, and key appointments. In other words, they signify not just share ownership but actual managerial leadership.

In particular, within mergers and acquisitions, securing managerial rights can maximize the target company's value and minimize risks that may arise during the integration process.

The importance of managerial rights becomes particularly pronounced when the acquiring company determines the long-term operational direction of the target company.

Owning the company is just a start; the core of managerial rights lies in possessing the ability to actually lead operations and management.

2. Key Issues Related to Securing Managerial Rights

In the M&A process, securing managerial rights is primarily linked to the proportion of share acquisition. Generally, holding more than 50% of total shares, or a majority of voting rights, can confer managerial rights.

Additionally, since major decisions in a company are often made through special resolutions in general meetings, strategies considering these requirements are necessary when securing managerial rights.

Special resolutions require the approval of more than two-thirds of the attending shareholders' voting rights and more than one-third of the total issued shares, and they include crucial matters like mergers, splits, and changes to the articles of association. Therefore, to secure managerial rights stably, it is crucial to develop a systematic plan not only to exceed a simple majority of shares but also to establish a favorable position in major resolutions.

However, in some cases, a structure may be formed where managerial rights can be captured with less than about 30% of shares. In such situations, indirect control of managerial rights through shareholder agreements with major shareholders within the company can be possible.

3. Managerial Rights Premium?

In M&A transactions, the managerial rights premium is also an important factor. The managerial rights premium refers to the additional cost paid to secure managerial rights.

For instance, if an acquirer secures 51% of the shares to obtain managerial rights, they gain actual control beyond mere shareholding. It is precisely this additional value that justifies paying a higher price.

4. Conclusion

In M&A, managerial rights represent crucial authority beyond merely owning a company, deciding the company's future.

Furthermore, the process to secure managerial rights is highly complex and necessitates rigorous strategy and planning.

WMD provides customized solutions with specialist consultants including lawyers and accountants from Samjeong KPMG and Kim & Chang.

We offer thorough advice and strategy in every process, from establishing shareholder agreements, optimizing share ratios, to legal and financial risk management for securing managerial rights.

Additionally, WMD supports swift and transparent transactions by using AI and big data analyses to accurately assess the target company's value and maximize matching accuracy.

Thank you.