Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>We believe that there is a very high probability of a successful tender offer of 25% stake in SM Entertainment by HYBE. </li>
<li>There is a 4.6% gap between the tender offer price and current price. There is a strong probability of this gap being closed in the next several weeks. </li>
<li>There could also be an on-going interest by Kakao to try to take over the controlling interest in SM Entertainment but HYBE is not likely to give up control easily.</li>
</ul>


We believe that there is a very high probability of a successful tender offer of 25% stake in SM Entertainment by HYBE. 
There is a 4.6% gap between the tender offer price and current price. There is a strong probability of this gap being closed in the next several weeks. 
There could also be an on-going interest by Kakao to try to take over the controlling interest in SM Entertainment but HYBE is not likely to give up control easily.


HYBE's Tender Offer of SM Entertainment: Closing the Price Gap

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.

<ul>
<li>There is no cancellation risk, regardless of where and how the ongoing proxy battle will be heading and unfolding. But there is a pro rata allocation risk, though.</li>
<li>Regarding tax, a tender event in Korea is treated as an over-the-counter trade. So transfer income tax is imposed.</li>
<li>SM provides shorting instruments necessary for arb trade, and the possibility of an arb opening coming out during tendering isn't completely dead, given the uncertainties surrounding the current proxy battle.</li>
</ul>


There is no cancellation risk, regardless of where and how the ongoing proxy battle will be heading and unfolding. But there is a pro rata allocation risk, though.
Regarding tax, a tender event in Korea is treated as an over-the-counter trade. So transfer income tax is imposed.
SM provides shorting instruments necessary for arb trade, and the possibility of an arb opening coming out during tendering isn't completely dead, given the uncertainties surrounding the current proxy battle.


Critical Details of Regulatory Filing for the SM Ent Tender Event

<ul>
<li>On 10 February (prior to market open), Seoul Economic Daily reported that HYBE will conduct a tender offer of SM Entertainment shares taking over the controlling ownership of the company.</li>
<li>HYBE agreed to acquire a 14.8% stake from SM Entertainment's founder Lee Soo-Man at 120,000 won per share, which represents a 21.8% premium to the closing price on 9 February.</li>
<li>HYBE is also conducting a tender offer to minority shareholders and it plans to acquire up to 25% additional shares at 120,000 won per share, representing 717 billion won.</li>
</ul>


On 10 February (prior to market open), Seoul Economic Daily reported that HYBE will conduct a tender offer of SM Entertainment shares taking over the controlling ownership of the company.
HYBE agreed to acquire a 14.8% stake from SM Entertainment's founder Lee Soo-Man at 120,000 won per share, which represents a 21.8% premium to the closing price on 9 February.
HYBE is also conducting a tender offer to minority shareholders and it plans to acquire up to 25% additional shares at 120,000 won per share, representing 717 billion won.


HYBE to Acquire a 39.8% Stake in SM Entertainment

<ul>
<li>On 20 January, SM Entertainment announced that Lee Chang-Hwan, the CEO of Align Partners Capital will join the company as a board member. </li>
<li>This will mark one of the first cases of an activist investor becoming a board member of a Korean company which already has a major shareholder.</li>
<li>We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully improve its corporate governance.</li>
</ul>


On 20 January, SM Entertainment announced that Lee Chang-Hwan, the CEO of Align Partners Capital will join the company as a board member. 
This will mark one of the first cases of an activist investor becoming a board member of a Korean company which already has a major shareholder.
We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully improve its corporate governance.


Align Partners' Lee Chang-Hwan Joins SM Entertainment as a Board Member

<ul>
<li>On 11 January, it was announced that Kakao Entertainment (103260 KS) has attracted large scale investments from Saudi Arabia's Sovereign Fund (Public Investment Fund - PIF) and GIC (Singapore).</li>
<li>Maekyung Business Daily reported that PIF and GIC combined invested about 1.1 trillion won to 1.2 trillion won in Kakao Entertainment, valuing the company at about 10 trillion won.</li>
<li>This major investment in Kakao Entertainment by PIF and GIC should have a positive impact on Kakao Corp (035720 KS), the controlling shareholder of the company.</li>
</ul>


On 11 January, it was announced that Kakao Entertainment (103260 KS) has attracted large scale investments from Saudi Arabia's Sovereign Fund (Public Investment Fund - PIF) and GIC (Singapore).
Maekyung Business Daily reported that PIF and GIC combined invested about 1.1 trillion won to 1.2 trillion won in Kakao Entertainment, valuing the company at about 10 trillion won.
This major investment in Kakao Entertainment by PIF and GIC should have a positive impact on Kakao Corp (035720 KS), the controlling shareholder of the company.


PIF and GIC Combined Invest About 1.2 Trillion Won in Kakao Entertainment

South Korea

HYBE Co., Ltd. operates as an entertainment company. The Company provides music production, album distribution, entertainers management, publicity, planning, training, and other services. HYBE also makes television shows.

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HYBE (352820 KS)

HYBE's Tender Offer of SM Entertainment: Closing the Price Gap

There is a 4.6% gap between the tender offer price and current price of SM Entertainment. There is a strong probability of this gap being closed in...

Douglas Kim

Critical Details of Regulatory Filing for the SM Ent Tender Event

This post offers critical details of the regulatory filing about HYBE's tender offer to the shareholders of SM Entertainment.

Sanghyun Park

HYBE to Acquire a 39.8% Stake in SM Entertainment

On 10 February (prior to market open), Seoul Economic Daily reported that HYBE will conduct a tender offer of SM Entertainment shares taking over...

Douglas Kim

Align Partners' Lee Chang-Hwan Joins SM Entertainment as a Board Member

We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully...

Douglas Kim

PIF and GIC Combined Invest About 1.2 Trillion Won in Kakao Entertainment

Maekyung Business Daily reported on 11 January that PIF (Saudi Arabia) and GIC combined invested about 1.2 trillion won in Kakao Entertainment,...

Douglas Kim

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