Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<div class="content-highlight">
<p>SK E&amp;S is taking its subsidiary <a href="https://www.smartkarma.com/entities/busan-city-gas-co-ltd" target="_blank" data-smartkarma-citation="entities:14452:1" rel="noopener">Busan City Gas (015350 KS)</a> private through a tender offer. On 16 September, SK E&amp;S announced that it would buy 2,595,597 shares of Busan City Gas (23.6% stake) at 85,000 won per share. SK E&amp;S plans to spend 221 billion won in this tender offer. </p>
<p>Prior to this tender offer, SK E&amp;S had a 67.32% stake in Busan City Gas. SK E&amp;S plans to create a synergistic effect in terms of the eco-friendly energy business such as hydrogen and fuel cell power generation of SK E&amp;S with the hydrogen charging business operated by Busan City Gas.</p>
<ul>
<li>Following this news, Busan City Gas' share price reached limit up 30% to 80,300 won. </li>
<li>In order to provide adequate returns for the minority shareholders, SK E&amp;S is trying to complete this tender offer at a price of 85,000 won which is 40.62% higher than the average share price of the company in the past three months. </li>
</ul>
</div>


SK E&amp;S is taking its subsidiary Busan City Gas (015350 KS) private through a tender offer. On 16 September, SK E&amp;S announced that it would buy 2,595,597 shares of Busan City Gas (23.6% stake) at 85,000 won per share. SK E&amp;S plans to spend 221 billion won in this tender offer. 
Prior to this tender offer, SK E&amp;S had a 67.32% stake in Busan City Gas. SK E&amp;S plans to create a synergistic effect in terms of the eco-friendly energy business such as hydrogen and fuel cell power generation of SK E&amp;S with the hydrogen charging business operated by Busan City Gas.

Following this news, Busan City Gas' share price reached limit up 30% to 80,300 won. 
In order to provide adequate returns for the minority shareholders, SK E&amp;S is trying to complete this tender offer at a price of 85,000 won which is 40.62% higher than the average share price of the company in the past three months. 



SK E&S Makes a Tender Offer For Busan City Gas To Take It Private

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

<p>This morning, SK E&amp;S, the major shareholder of Busan City Gas, announced that it would conduct a tender offer to all remaining outstanding shares of Busan City Gas (2,595,597 shares, 23.60%). The tender offer price is 85,000 won per share, and the purchase period is from today to the 15th of the next month. SK E&amp;S plans to apply for delisting of Busan City Gas.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/230/029/original/3.png?1631755933" class="editor-image img-responsive" data-smartkarma-image-id="230029"></figure></section><p>The total number of issued shares of Busan City Gas is 11,000,000. SK E&amp;S, the largest shareholder, owns 67.23%. And the number of treasury shares is 999,000 (9.08%). Therefore, the total remaining shares are 2,595,597 (23.60%), and SK E&amp;S plans to purchase all of these shares through a tender offer.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholding"}'>Shareholding</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Shares"}'>Shares</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"%"}'>%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total shares"}'>Total shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":11000000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-6]C[-1]">11,000,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R8C2">100.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK E&amp;S"}'>SK E&amp;S</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":7405403}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>7,405,403</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6732184545454546}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R8C2">67.32%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Treasury shares"}'>Treasury shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":999000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'>999,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.09081818181818181}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R8C2">9.08%</td>
</tr>
<tr><td colspan="3"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ESOP"}'><strong>ESOP</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1075}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>1,075</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.00009772727272727273}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R8C2"><strong>0.01%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KISWIRE"}'><strong>KISWIRE</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1266279}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>1,266,279</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.11511627272727273}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R8C2"><strong>11.51%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Other minority shareholders"}'><strong>Other minority shareholders</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1328243}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-5]C[0]-sum(R[-4]C[0]:R[-1]C[0])"><strong>1,328,243</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.12074936363636364}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[0]C[-1]/R8C2"><strong>12.07%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: FnGuide &amp; KRX FIND"}'>Source: FnGuide &amp; KRX FIND</td></tr>
</tbody>
</table><p>From today to the 15th of next month is the tendering period, and SK E&amp;S pays cash. The cash payment date is October 20th. The tendering price is 85,000 won, a whopping 37.54% premium from yesterday's closing price. This is a premium of over 40% compared to the average price for the past 1 month and 3 months.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Pricing"}'>Pricing</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering price"}'>Offering price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":85000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩85,000</td>
</tr>
<tr><td colspan="2"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Last close"}'>Last close</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":61800}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩61,800</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Premium"}'><strong>- Premium</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.37540453074433655}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R2C2-R[-1]C[0])/R[-1]C[0]"><strong>37.54%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1W average"}'>1W average</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":61300}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=average(index(googlefinance(R[-2]C[1], "price", today()-5, today()), 0, 2))'>₩61,300</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Premium"}'><strong>- Premium</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3866231647634584}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R2C2-R[-1]C[0])/R[-1]C[0]"><strong>38.66%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1M average"}'>1M average</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":59659.09090909091}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=average(index(googlefinance(R[-4]C[1], "price", today()-30, today()), 0, 2))'>₩59,659</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Premium"}'><strong>- Premium</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4247619047619047}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R2C2-R[-1]C[0])/R[-1]C[0]"><strong>42.48%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"3M average"}'>3M average</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60069.354838709674}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula='=average(index(googlefinance(R[-6]C[1], "price", today()-90, today()), 0, 2))'>₩60,069</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Premium"}'><strong>- Premium</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4150310125392692}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R2C2-R[-1]C[0])/R[-1]C[0]"><strong>41.50%</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><div class="content-highlight"><p><strong>SK E&amp;S plans to pursue delisting after acquiring shares through a tender offer. According to the stock market listing regulations, if the largest shareholder owns more than 95% of the total issued stock of a target company, they can apply for voluntary delisting.</strong></p></div>

This morning, SK E&amp;S, the major shareholder of Busan City Gas, announced that it would conduct a tender offer to all remaining outstanding shares of Busan City Gas (2,595,597 shares, 23.60%). The tender offer price is 85,000 won per share, and the purchase period is from today to the 15th of the next month. SK E&amp;S plans to apply for delisting of Busan City Gas.The total number of issued shares of Busan City Gas is 11,000,000. SK E&amp;S, the largest shareholder, owns 67.23%. And the number of treasury shares is 999,000 (9.08%). Therefore, the total remaining shares are 2,595,597 (23.60%), and SK E&amp;S plans to purchase all of these shares through a tender offer.







Shareholding
Shares
%


Total shares
11,000,000
100.00%


SK E&amp;S
7,405,403
67.32%


Treasury shares
999,000
9.08%



ESOP
1,075
0.01%


KISWIRE
1,266,279
11.51%


Other minority shareholders
1,328,243
12.07%

Source: FnGuide &amp; KRX FIND

From today to the 15th of next month is the tendering period, and SK E&amp;S pays cash. The cash payment date is October 20th. The tendering price is 85,000 won, a whopping 37.54% premium from yesterday's closing price. This is a premium of over 40% compared to the average price for the past 1 month and 3 months.





Pricing

Offering price
₩85,000



Last close
₩61,800


- Premium
37.54%


1W average
₩61,300


- Premium
38.66%


1M average
₩59,659


- Premium
42.48%


3M average
₩60,069


- Premium
41.50%

Source: DART &amp; KRX

SK E&amp;S plans to pursue delisting after acquiring shares through a tender offer. According to the stock market listing regulations, if the largest shareholder owns more than 95% of the total issued stock of a target company, they can apply for voluntary delisting.

Busan City Gas Tender Offer at a Whopping 40% Premium by SK E&S:

<p>The SK Inc/SK Materials stock swap arb spread has been consistently maintained at a 3% level.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/039/original/image_54310233621630910463267.png?1630910464" class="editor-image img-responsive" data-smartkarma-image-id="228039"></figure><p><strong>Then, should we do this arb?</strong></p><p>This depends on how much you see the possibility of cancellation, which is the only risk of this event.</p><p>For this merger to pass the EGM, it must satisfy the following two requirements:</p><div class="content-highlight">
<ul><li><strong>2/3 of attending shareholders to vote for the merger</strong></li></ul>
<p><strong>AND</strong></p>
<ul><li><strong>1/3 of all shareholders to vote for the merger</strong></li></ul>
</div><div id="ember2904" data-message-id="514079"><div><div id="ember2905"><div><div><div><p>First, treasury shares account for 15.07%, which is non-voting shares. So, as SK Inc owns 49.1%, which translates into 58% of the voting shares, it has a pretty good shot at passing the merger by itself alone, even though it falls short of hitting 2/3 (66%).</p></div></div></div></div></div></div><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholding - SK Materials"}'>Shareholding - SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Share %"}'>Share %</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Voting %"}'>Voting %</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Inc"}'><strong>SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4912}' data-sheets-numberformat='[null,3,"0.00%",1]'>49.12%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.578358648298599}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>57.84%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Treasury shares"}'><strong>Treasury shares</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.1507}' data-sheets-numberformat='[null,3,"0.00%",1]'>15.07%</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'><strong>-</strong></td>
</tr>
<tr><td colspan="3"><strong> </strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS"}'>NPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0713}' data-sheets-numberformat='[null,3,"0.00%",1]'>7.13%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.08395148946190982}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>8.40%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Minority shareholders"}'>Minority shareholders</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.28680000000000005}' data-sheets-numberformat='[null,3,"0.00%",1]'>28.68%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.33768986223949143}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>33.77%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Foreign"}'>- Foreign</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.175}' data-sheets-numberformat='[null,3,"0.00%",1]'>17.50%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.20605204285882492}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>20.61%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Local institutions/retail"}'>- Local institutions/retail</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.11180000000000007}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[-2]C[0]-R[-1]C[0]">11.18%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.13163781938066652}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=R[0]C[-1]/(1-R3C2)"><strong>13.16%</strong></td>
</tr>
<tr><td colspan="3"></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Voting rights (NPS+minority)"}'><strong>Voting rights (NPS+minority)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.42164135170140127}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-4]C[-1]+R[-3]C[-1])/(1-R3C2)"><strong>42.16%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Voting rights (minority)"}'><strong>Voting rights (minority)</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.33768986223949143}' data-sheets-numberformat='[null,3,"0.00%",1]' data-sheets-formula="=(R[-4]C[-1])/(1-R3C2)"><strong>33.77%</strong></td>
</tr>
<tr><td colspan="3" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: KRX &amp; FnGuide</td></tr>
</tbody>
</table><p>The issue is stock purchase cost, whose ceiling is set at 800 billion won, representing 18% of the SO and 51% of the minority shareholders' shares.</p><div class="content-highlight"><p><strong>It is important to note that exceeding the ceiling doesn't necessarily mean SK will cancel the merger. Instead, it will consider canceling the merger if the total cost exceeds the ceiling.</strong></p></div><div id="ember2918" data-message-id="514083"><div id="ember2919">
<p>Minority shareholders can be broken down into NPS (7.1%), foreign (17.5%), local institutions/retail (11.2%). I wouldn't care much about local institutions/retail. Local institutional investors typically do not oppose corporate events involving local conglomerates. This is because most of them are affiliates of financial holding companies, which in turn are tied to various deal opportunities with conglomerates such as SK Group. Local retail shareholders have significantly lower shareholder attendance rates. In addition, the proportion of stocks traded after August 23rd, the last day to have a dissent right, should be high.</p>
<p>Then NPS? I don't think they would vote against it. NPS has not said much about the merger so far. There has been a recent case where NPS voted against the corporate event of local conglomerates. But this merger, it'd be different. Since both are listed companies, there is no problem with the merger ratio. In addition, it would be difficult to see that the strategic value of the merger is low enough to claim that SK Materials' shareholder value is damaged.</p>
<p>Then, the key would be foreign shareholders (17.5%). Based on today's closing price, the dissent right spread is around 1%. It is questionable whether such a spread will lead to a huge dissent right exercise. But even if foreign shareholders fully exercised their dissent rights, it would be right below the ceiling.</p>
<table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Spread - stock purchase"}'>Spread - stock purchase for SK Materials</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current price"}'>Current price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":410400}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩410,400</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'>Exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩415,751</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Transfer income tax"}'>Transfer income tax</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1122.22}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩1,122</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Shares"}'>- Shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10000}' data-sheets-numberformat='[null,2,"#,##0"]'>10,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Tax-adj. exercise price"}'>Tax-adj. exercise price</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":414628.78}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩414,629</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Spread"}'>Spread</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.01030404483430806}' data-sheets-numberformat='[null,3,"0.00%",1]'>1.03%</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table>
</div></div><div class="content-highlight"><p><strong>So, my prediction is this merger will go through.</strong></p></div>

The SK Inc/SK Materials stock swap arb spread has been consistently maintained at a 3% level.Then, should we do this arb?This depends on how much you see the possibility of cancellation, which is the only risk of this event.For this merger to pass the EGM, it must satisfy the following two requirements:
2/3 of attending shareholders to vote for the merger
AND
1/3 of all shareholders to vote for the merger
First, treasury shares account for 15.07%, which is non-voting shares. So, as SK Inc owns 49.1%, which translates into 58% of the voting shares, it has a pretty good shot at passing the merger by itself alone, even though it falls short of hitting 2/3 (66%).







Shareholding - SK Materials
Share %
Voting %


SK Inc
49.12%
57.84%


Treasury shares
15.07%
-

 

NPS
7.13%
8.40%


Minority shareholders
28.68%
33.77%


- Foreign
17.50%
20.61%


- Local institutions/retail
11.18%
13.16%



Voting rights (NPS+minority)
-
42.16%


Voting rights (minority)
-
33.77%

Source: KRX &amp; FnGuide

The issue is stock purchase cost, whose ceiling is set at 800 billion won, representing 18% of the SO and 51% of the minority shareholders' shares.It is important to note that exceeding the ceiling doesn't necessarily mean SK will cancel the merger. Instead, it will consider canceling the merger if the total cost exceeds the ceiling.
Minority shareholders can be broken down into NPS (7.1%), foreign (17.5%), local institutions/retail (11.2%). I wouldn't care much about local institutions/retail. Local institutional investors typically do not oppose corporate events involving local conglomerates. This is because most of them are affiliates of financial holding companies, which in turn are tied to various deal opportunities with conglomerates such as SK Group. Local retail shareholders have significantly lower shareholder attendance rates. In addition, the proportion of stocks traded after August 23rd, the last day to have a dissent right, should be high.
Then NPS? I don't think they would vote against it. NPS has not said much about the merger so far. There has been a recent case where NPS voted against the corporate event of local conglomerates. But this merger, it'd be different. Since both are listed companies, there is no problem with the merger ratio. In addition, it would be difficult to see that the strategic value of the merger is low enough to claim that SK Materials' shareholder value is damaged.
Then, the key would be foreign shareholders (17.5%). Based on today's closing price, the dissent right spread is around 1%. It is questionable whether such a spread will lead to a huge dissent right exercise. But even if foreign shareholders fully exercised their dissent rights, it would be right below the ceiling.






Spread - stock purchase for SK Materials

Current price
₩410,400


Exercise price
₩415,751


Transfer income tax
₩1,122


- Shares
10,000


Tax-adj. exercise price
₩414,629


Spread
1.03%

Source: DART &amp; KRX


So, my prediction is this merger will go through.

SK Inc/SK Materials Merger: Approval Possibilities & Another Arb Opportunity with SK Inc Futures

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div><p>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</p></div><div><p>Hong Kong saw shorts rise on <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>, <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a>, <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a> and <a href="https://www.smartkarma.com/entities/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <a href="https://www.smartkarma.com/entities/anta-sports-products-ltd" target="_blank" data-smartkarma-citation="entities:10261:1" rel="noopener">Anta Sports Products (2020 HK)</a>, <a href="https://www.smartkarma.com/entities/shenzhou-intl-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10415:1" rel="noopener">Shenzhou Intl Group Holdings (2313 HK)</a> and <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a>. Shorts increased in the Information Technology, Consumer Discretionary, Health Care and Real Estate sectors while decreasing in the Communication Services and Materials sectors.</p></div><div><p>In Japan, stocks increased on <a href="https://www.smartkarma.com/entities/shiseido-co-ltd" target="_blank" data-smartkarma-citation="entities:5718:1" rel="noopener">Shiseido Company (4911 JP)</a>, <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a>, <a href="https://www.smartkarma.com/entities/yaskawa-electric-corp" target="_blank" data-smartkarma-citation="entities:2458:1" rel="noopener">Yaskawa Electric (6506 JP)</a>, <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" data-smartkarma-citation="entities:1:1" rel="noopener">Canon Inc (7751 JP)</a> and <a href="https://www.smartkarma.com/entities/mitsui-osk-lines-ltd" target="_blank" data-smartkarma-citation="entities:20717:1" rel="noopener">Mitsui Osk Lines (9104 JP)</a> while there was short covering on <a href="https://www.smartkarma.com/entities/invesco-office-j-reit-inc" target="_blank" data-smartkarma-citation="entities:7414:1" rel="noopener">Invesco Office J Reit (3298 JP)</a>, <a href="https://www.smartkarma.com/entities/odakyu-electric-railway-co-ltd" target="_blank" data-smartkarma-citation="entities:5405:1" rel="noopener">Odakyu Electric Railway (9007 JP)</a>, <a href="https://www.smartkarma.com/entities/lasertec-corp" target="_blank" data-smartkarma-citation="entities:4126:1" rel="noopener">Lasertec Corp (6920 JP)</a>, <a href="https://www.smartkarma.com/entities/jsr-corp" target="_blank" data-smartkarma-citation="entities:17620:1" rel="noopener">JSR Corp (4185 JP)</a>, <a href="https://www.smartkarma.com/entities/keio-corp" target="_blank" data-smartkarma-citation="entities:1223:1" rel="noopener">Keio Corp (9008 JP)</a>. Shorts increased in most sectors led by the Industrials, Consumer Discretionary, Information Technology, Consumer Staples and Materials stocks.</p></div><div><p>In Korea, shorts increased on <a href="https://www.smartkarma.com/entities/ncsoft-corp" target="_blank" data-smartkarma-citation="entities:5169:1" rel="noopener">NCSOFT Corp (036570 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-display-co-ltd" target="_blank" data-smartkarma-citation="entities:7145:1" rel="noopener">LG Display (034220 KS)</a>, <a href="https://www.smartkarma.com/entities/kumho-petro-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2014:1" rel="noopener">Kumho Petro Chemical (011780 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:393:1" rel="noopener">SK Inc (034730 KS)</a> and <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/sk-telecom-co-ltd-bbccd86c-474d-4a4d-946d-10e911a225a2" target="_blank" data-smartkarma-citation="entities:395:1" rel="noopener">SK Telecom (017670 KS)</a>, <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/oci-co-ltd" target="_blank" data-smartkarma-citation="entities:1904:1" rel="noopener">Oci Co Ltd (010060 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-biologics-co-ltd" target="_blank" data-smartkarma-citation="entities:22932:1" rel="noopener">Samsung Biologics Co., (207940 KS)</a> and <a href="https://www.smartkarma.com/entities/korea-shipbuilding-offshore-engineering-co-ltd" target="_blank" data-smartkarma-citation="entities:10155:1" rel="noopener">Korea Shipbuilding &amp; Offshore Engineering (009540 KS)</a>. </p></div><div><p>In Taiwan, shorts increased on <a href="https://www.smartkarma.com/entities/evergreen-marine-corp-ltd" target="_blank" data-smartkarma-citation="entities:15428:1" rel="noopener">Evergreen Marine Corp (2603 TT)</a>, <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a>, <a href="https://www.smartkarma.com/entities/ase-technology-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:27270:1" rel="noopener">ASE Technology Holding Co Ltd (3711 TT)</a>, <a href="https://www.smartkarma.com/entities/taishin-financial-holding" target="_blank" data-smartkarma-citation="entities:715:1" rel="noopener">Taishin Financial Holding (2887 TT)</a> and <a href="https://www.smartkarma.com/entities/momo-com-inc" target="_blank" data-smartkarma-citation="entities:8403:1" rel="noopener">Momo.Com Inc (8454 TT)</a> while shorts covered on <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/china-steel-corp" target="_blank" data-smartkarma-citation="entities:962:1" rel="noopener">China Steel (2002 TT)</a>, <a href="https://www.smartkarma.com/entities/wan-hai-lines-ltd" target="_blank" data-smartkarma-citation="entities:14262:1" rel="noopener">Wan Hai Lines (2615 TT)</a>, <a href="https://www.smartkarma.com/entities/united-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:6450:1" rel="noopener">United Microelectronics Corp (2303 TT)</a> and <a href="https://www.smartkarma.com/entities/taiwan-business-bank" target="_blank" data-smartkarma-citation="entities:18958:1" rel="noopener">Taiwan Business Bank (2834 TT)</a>. </p></div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.Hong Kong saw shorts rise on Alibaba Group (9988 HK), China Merchants Bank H (3968 HK), JD.com Inc. (9618 HK), Xiaomi Corp (1810 HK) and Kuaishou Technology (1024 HK) while there was short covering on Tencent (700 HK), Ping An Insurance (H) (2318 HK), Anta Sports Products (2020 HK), Shenzhou Intl Group Holdings (2313 HK) and HKEX (388 HK). Shorts increased in the Information Technology, Consumer Discretionary, Health Care and Real Estate sectors while decreasing in the Communication Services and Materials sectors.In Japan, stocks increased on Shiseido Company (4911 JP), Fast Retailing (9983 JP), Yaskawa Electric (6506 JP), Canon Inc (7751 JP) and Mitsui Osk Lines (9104 JP) while there was short covering on Invesco Office J Reit (3298 JP), Odakyu Electric Railway (9007 JP), Lasertec Corp (6920 JP), JSR Corp (4185 JP), Keio Corp (9008 JP). Shorts increased in most sectors led by the Industrials, Consumer Discretionary, Information Technology, Consumer Staples and Materials stocks.In Korea, shorts increased on NCSOFT Corp (036570 KS), LG Display (034220 KS), Kumho Petro Chemical (011780 KS), SK Inc (034730 KS) and Samsung Electronics (005930 KS) while shorts were covered on SK Telecom (017670 KS), Celltrion Inc (068270 KS), Oci Co Ltd (010060 KS), Samsung Biologics Co., (207940 KS) and Korea Shipbuilding &amp; Offshore Engineering (009540 KS). In Taiwan, shorts increased on Evergreen Marine Corp (2603 TT), Mediatek Inc (2454 TT), ASE Technology Holding Co Ltd (3711 TT), Taishin Financial Holding (2887 TT) and Momo.Com Inc (8454 TT) while shorts covered on TSMC (2330 TT), China Steel (2002 TT), Wan Hai Lines (2615 TT), United Microelectronics Corp (2303 TT) and Taiwan Business Bank (2834 TT). 

Asia Shorts: Alibaba, CMB, Tencent, Anta, Shiseido, Odakyu, Keio, NC Soft, LGD, SK Tel, Evergreen

<h2>Change the articles of incorporation for stock dividends</h2><p>SK Innovation will hold an extraordinary general meeting of shareholders on September 16. The most important agenda for this general shareholders' meeting is to get shareholder approval for SK Innovation's spin-off announced on the 4th of this month.</p><div class="content-highlight">
<p><strong>But other things stand out as well.</strong></p>
<p><strong>That is, SK innovation is partially amending its articles of incorporation. And it wants to obtain shareholder approval for these amendments at this general meeting.</strong></p>
</div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/948/original/Screen+Shot+2021-08-30+at+5.39.42+PM.png?1630359625" class="editor-image img-responsive" data-smartkarma-image-id="226948"></figure></section><p>Among the amendments, the amendment to allow for stock dividends is attracting attention from the market. It is unusual for a Korean local company to insert a stock dividend clause (in addition to a cash dividend) in the articles of incorporation. In fact, a stock dividend itself is unfamiliar in Korea.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/949/original/Screen+Shot+2021-08-30+at+5.26.21+PM.png?1630360013" class="editor-image img-responsive" data-smartkarma-image-id="226949"></figure><p>Then, on the surface, it is interpreted that SK Innovation chose a stock dividend to reduce the backlash from shareholders following the spin-off because SK Innovation lacked cash and transferred most of its cash holdings to a new battery company.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/950/original/Screen+Shot+2021-08-30+at+5.53.24+PM.png?1630360549" class="editor-image img-responsive" data-smartkarma-image-id="226950"></figure></section></section>

Change the articles of incorporation for stock dividendsSK Innovation will hold an extraordinary general meeting of shareholders on September 16. The most important agenda for this general shareholders' meeting is to get shareholder approval for SK Innovation's spin-off announced on the 4th of this month.
But other things stand out as well.
That is, SK innovation is partially amending its articles of incorporation. And it wants to obtain shareholder approval for these amendments at this general meeting.
Among the amendments, the amendment to allow for stock dividends is attracting attention from the market. It is unusual for a Korean local company to insert a stock dividend clause (in addition to a cash dividend) in the articles of incorporation. In fact, a stock dividend itself is unfamiliar in Korea.Then, on the surface, it is interpreted that SK Innovation chose a stock dividend to reduce the backlash from shareholders following the spin-off because SK Innovation lacked cash and transferred most of its cash holdings to a new battery company.


SK Innovation's Unusual Attempt to Change the Articles of Incorporation for Stock Dividends

South Korea

SK Holdings Co., Ltd. is a holdings company that is engaged in various industries including energy, chemicals, information technology, semiconductors, marketing, and services businesses in South Korea and internationally.

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SK Inc (034730 KS)

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