Securities firms find opportunities in tender offer market

The Korea Times

The Korea Times

Finance

Tue, September 26, 2023 | 07:32

Companies

Securities firms find opportunities in tender offer market

Posted : 2023-03-10 08:29

Updated : 2023-03-12 13:36

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By Anna J. Park

With a series of tender offers grabbing recent headlines, local securities firms' investment banking departments seem to be perking up, after months of recessional declines due to plunged asset prices.

A tender offer is a type of public takeover bid to purchase some or all of shareholders' stocks in a corporation, inviting shareholders to sell their shares at a specified price within a particular window of time.

This year alone, the so-called big four brokerages in Korea ― Mirae Asset Securities, Korea Investment, NH Investment and Samsung Securities ― have already conducted a total of four tender offers so far. This is similar to the number of their tender offers throughout all of last year.

In particular, three out of the four tender offer cases were initially brought up amid management rights disputes, triggered by activist funds' shareholder proposals. For instance, the Korea Corporate Governance Improvement (KCGI), a local activist fund, was behind a tender offer on Osstem Implant shares in February. After acquiring about 7 percent of the dental company last year, the KCGI started to press Osstem Implant management to improve its corporate governance. Under such pressure, the private equity consortium of MBK Partners and Unison Capital Korea (UCK) launched the tender offer, selecting NH Investment & Securities to take charge of the public takeover process.

In addition to earning advisory service fees for the takeover process, NH Investment also garnered loan interest profits by offering a bridge loan ― a short-term loan used until a corporation secures financing ― worth 1.7 trillion won ($1.28 billion) to the private equity consortium to finance the tender offer payments.

Similarly, Samsung Securities took charge of HYBE's tender offer process in February to acquire a 25 percent stake in SM Entertainment. The deal was also initially triggered by activist fund Align Partners' consistent raising of issues over SM's poor corporate governance throughout last year. Although the public takeover failed to secure its targeted goal, Samsung Securities not only pocketed a fee for it, but also could build a track record of offering advisory services for tender offer projects.

Currently, Korea Investment is in charge of Kakao's tender offer, in an attempt until March 26, to acquire a 35 percent stake in SM Entertainment. Some view that Korea Investment was appointed to take care of the tender offer launched by Kakao, the parent company of KakaoBank, as the securities firm is the second-largest shareholder of KakaoBank.

Korea Investment is also conducting another tender offer launched by IMM Private Equity to purchase 1.8 million shares of Hanssem.

The local brokerage sector is welcoming the expansion of the tender offer market, propelled by strengthened shareholder activism, as it could provide a new source of business opportunities for them. They view that this newly emerging market, ranging from tender offer advisory, financing and bridge loans, could restore vigor in the industry, which has been hard hit by real estate project financing since last year.

annajpark@koreatimes.co.kr