UPDATE 2-S.Korea seeks poison pill against hostile M&A

By Kim Yeon-hee SEOUL, Nov 9 (Reuters) - South Korea is seeking to introduce a poison pill scheme to protect companies from being taken over after foreign funds increased their holdings in domestic stocks. Two of the country's best-known companies -- Samsung Electronics and POSCO, the world's No.4 steelmaker -- are, respectively, 47 and 49 percent owned by foreign investors. Analysts say a move to head off hostile takeovers could hurt minority shareholders by stripping out M&A premiums from stock values. Business groups, though, have called for a clause in their company statutes to allow an acquisition target to issue new shares to designated shareholders at a pre-set low price, so diluting the ownership value of a hostile bidder. Domestic M&A laws have been loosened since the 1997-98 Asian financial crisis, and in 2006 activist investor Carl Icahn and hedge fund Steel Partners floated the idea of buying tobacco monopoly KT&G in what would have been South Korea's first unsolicited foreign takeover bid, but no official tender offer was filed. In 2003, SK Group, parent of top mobile carrier SK Telecom and refiner SK Energy, clashed with Sovereign Asset Management, which unsuccessfully sought to remove its chairman. Those cases raised a red flag to unfriendly takeover attempts and led listed companies, including Samsung and POSCO, to spend $55 billion defending their management as of end-January. "Our country has made hostile M&A attacks easy by removing a ceiling on foreign stock investments, but it has not had any means to prevent hostile M&A," the justice ministry said in a statement on Monday. The ministry said it was holding a public hearing on Monday to discuss the poison pill, though it added this should not be handed to a third party -- to prevent it being used for other purposes. CONCERNS Some analysts worry that any move towards an anti-takeover bill will cut M&A premiums on stocks, though the broad Seoul share market showed little reaction on Monday, rising 0.6 percent by 0435 GMT. The potential bill also reflects the government's efforts to boost corporate investment and create jobs to sustain an economic recovery sparked by fiscal spending. "Buying shares in their companies and cross-unit investments are high-cost, low-efficiency means to protect themselves, and end up wasting company money that should otherwise be used for productive investment," the ministry said. The United States and Japan have adopted anti-takeover measures but, in Japan, a recent proliferation of poison pill anti-takeover defence schemes and a decades-old tradition of cross-shareholdings were common practices hurting minority shareholders, critics said. Lee Sun-yeb, a Shinhan Investment Corp analyst, doubted how effective legislation could be. "From local companies' perspective, it will be a matter of financial capability," he said. "In that respect, the law's role will be limited." ($1=1167.6 Won) (Additional reporting by Shin Jieun; Editing by Jonathan Hopfner and Ian Geoghegan) (([e-mail]; [phone]; Reuters Messaging: [e-mail])) Keywords: KOREA POISONPILL/ .

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