The acquisition per share is lowered by a capital increase after buying the majority shareholders shares
Pay attention to the promise of the new government that does not recognize the premium for management rights
[Seoul Economy]
Towards SM Entertainment, which is negotiating a sale with Kakao Entertainment, minority shareholders have been wary of a capital increase after the sale. This is because Kakao Entertainment is highly likely to make a lower-priced capital increase to compensate for this after acknowledging the premium for management rights and buying only the stake of executive producer Lee Soo-man, the largest shareholder of SM. It is pointed out that it goes against the direction of future policies as the new governments presidential campaign promises to allow minority shareholders to receive a premium for management rights.
On the 16th, Align Partners Asset Management, a minority shareholder of SM Entertainment, said, “Kakao Enter will take over only the stake of the major shareholder of SM at a high premium, and then try a large-scale third-party capital increase to compensate for the low stake in the acquisition.” “In this case, earnings per share will be diluted and existing shareholder value will be damaged,” he argued.
Align predicted that immediately after Kakao Entertainment took over SM, the business cycle related to Chairman Lee Soo-man would be resolved, and the SM stock price from 79,800 won could rise to 99,600 won. However, it is estimated that if Kakao Enters a rights increase of 300 billion won, its earnings per share will decrease and the stock price will drop to 85,900 won.
They emphasized that there is no need for a capital increase for business reasons because SM is a net-cash company with more cash than borrowings and has the highest net-cash ratio among competitors. Some minority shareholders are considering applying for an injunction to prevent SMs capital increase.
According to the industry, Kakao Enter is currently considering a plan to increase capital by 300 billion won after acquiring the stake of executive producer Lee Soo-man at twice the market price. With a 19% stake, it is not easy to manage a listed company, and the acquisition price per share is too high.
In the meantime, in domestic management rights transactions, most of the cases have been to buy only the shares with a special relationship with the major shareholder at a high price and then go through a rights issue at a lower price. However, in most foreign countries, the concept of a management premium does not exist, and when acquiring a majority shareholders share, minority shareholders shares are also required to be acquired at the same price. This is because there should be no discrimination in the rights of shareholders and the property rights of minority shareholders may be infringed.
In response, President-elect Yoon Seok-yeol made a promise to give stock purchase rights to the shareholders of the acquired company in the event of a change in management rights. Ultimately, if such a system is introduced, there will be no management premium, which is usually added to 30% of the market price in exchange for securing management rights in the event of a major shareholders takeover. However, amendments to the law are necessary to introduce this system.
An industry official said, “Once the system is introduced, premiums cannot be recognized when selling management rights.” “Those who want to sell a company will try to sell it before that, and those who want to take over a private equity fund, etc. may be reduced,” he predicted.
