Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

<blockquote><p><a href="https://twitter.com/TimSweeneyEpic/status/1432647669864878083?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1432647669864878083%7Ctwgr%5E%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fwww.pcgamer.com%2Fsouth-korea-passes-law-with-major-implications-for-apple-vs-epic%2F" target="_blank" rel="noopener">Korea</a> is first in open platforms! Korea has rejected digital commerce monopolies and recognized open platforms as a right. This marks a major milestone in the 45-year history of personal computing. It began in Cupertino, but the forefront today is in Seoul. (Tim Sweeney - Founder of Epic Games)</p></blockquote><p>In a landmark case (an amendment of the Telecommunications Business Act), the <a href="https://www.wsj.com/articles/google-apple-hit-in-south-korea-by-worlds-first-law-ending-their-dominance-over-app-store-payments-11630403335" target="_blank" rel="noopener">Korean government</a> announced on 31 August that Google and Apple will need to open their app stores to alternative payment systems in South Korea. This change in regulation is likely to negatively impact Google and Apple's lucrative commissions on digital sales.</p><p>A new bill was passed by the Korean National Assembly on 31 August which will significantly reduce Google and Apple's dominance of digital sales on their app platforms. The final step is for President Moon to sign this bill but it is almost a near certainty that he will sign this bill. The following are the major companies/sectors that could benefit from the change in law:</p><ul>
<li><strong><a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a></strong></li>
<li><strong><a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a></strong></li>
<li><strong>Korean Telcos</strong></li>
<li><strong>Korean Game Companies</strong></li>
<li><strong>Korean Entertainment/Music/Movies/Drama Companies </strong></li>
</ul>

Korea is first in open platforms! Korea has rejected digital commerce monopolies and recognized open platforms as a right. This marks a major milestone in the 45-year history of personal computing. It began in Cupertino, but the forefront today is in Seoul. (Tim Sweeney - Founder of Epic Games)In a landmark case (an amendment of the Telecommunications Business Act), the Korean government announced on 31 August that Google and Apple will need to open their app stores to alternative payment systems in South Korea. This change in regulation is likely to negatively impact Google and Apple's lucrative commissions on digital sales.A new bill was passed by the Korean National Assembly on 31 August which will significantly reduce Google and Apple's dominance of digital sales on their app platforms. The final step is for President Moon to sign this bill but it is almost a near certainty that he will sign this bill. The following are the major companies/sectors that could benefit from the change in law:
Naver Corp (035420 KS)
Kakao Corp (035720 KS)
Korean Telcos
Korean Game Companies
Korean Entertainment/Music/Movies/Drama Companies 


Korean Government Forces Google & Apple To Open Their App Stores to Alternative Payments

Event-Driven

<div class="content-highlight">
<h2>Conclusion</h2>
<p>We believe that this merger between SK Inc and SK Materials Holdings is likely to get completed. The long term benefit should be higher for SK Inc as it removes the holdco discount associated with its stake in SK Materials and is able to absorb the company without too much dilution.</p>
<p>In addition, in the next 3-5 years, there will likely be more speculation about an eventual merger between SK Inc and SK Square but that will likely require SK Inc raising its value much higher than current levels. Overall, we continue to have a POSITIVE view of SK Inc. </p>
<p>Both SK Square and SK Inc (post merger with SK Materials), will invest in the various segments of the global semiconductor value chain. SK Inc has mentioned that it plans to focus on investing in four main strategic sectors including new materials, bio, green and digital. <span>As both companies will be involved in investing in the various segments of the global semiconductor sector, there will likely be some overlaps in their investment operations. </span><span>As such, there could be some long-term benefits of merging SK Inc and SK Square. </span></p>
</div>


Conclusion
We believe that this merger between SK Inc and SK Materials Holdings is likely to get completed. The long term benefit should be higher for SK Inc as it removes the holdco discount associated with its stake in SK Materials and is able to absorb the company without too much dilution.
In addition, in the next 3-5 years, there will likely be more speculation about an eventual merger between SK Inc and SK Square but that will likely require SK Inc raising its value much higher than current levels. Overall, we continue to have a POSITIVE view of SK Inc. 
Both SK Square and SK Inc (post merger with SK Materials), will invest in the various segments of the global semiconductor value chain. SK Inc has mentioned that it plans to focus on investing in four main strategic sectors including new materials, bio, green and digital. As both companies will be involved in investing in the various segments of the global semiconductor sector, there will likely be some overlaps in their investment operations. As such, there could be some long-term benefits of merging SK Inc and SK Square. 


Merger of SK Inc & SK Materials Holdings: A Prelude to An Eventual Merger with SK Square?

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.

<h2>Event overview</h2><p>We have another stock swap event in Korea. SK Inc (SK Holdings) merges with SK Materials. SK Inc will be a surviving entity, and SK Materials will be dissolved. <strong>So yes, this is a nearly pure arb opportunity. I need to stress the word "Nearly" here, meaning that it isn't a 100% risk-free arb. But the only risk here is cancellation, which will be triggered by the stock purchase ceiling amount of ₩800.0B.</strong></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":"Swap overview"}'>Swap overview</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'><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></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'><a href="https://www.smartkarma.com/entities/oci-materials-co-ltd" target="_blank" data-smartkarma-citation="entities:19390:1" rel="noopener">SK Materials (036490 KS)</a></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price for SK Inc"}' data-sheets-formula='="Swap price for "&amp;R[-6]C[1]'><strong>Swap price for SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":264076}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩264,076</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price for SK Materials Co Ltd"}' data-sheets-formula='="Swap price for "&amp;R[-4]C[1]'><strong>Swap price for SK Materials</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":416670}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩416,670</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.5778412}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>1.5778412</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Amount"}'><strong>Stock purchase ceiling amount</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":800}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}'><strong>₩0.80T</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - SK Inc"}' data-sheets-formula='="Exercise price - "&amp;R[-11]C[1]'>Exercise price - SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>N/A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - SK Materials Co Ltd"}' data-sheets-formula='="Exercise price - "&amp;R[-9]C[1]'><strong>Exercise price - SK Materials</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>₩415,751</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>Below are the swap price calculations for both companies, giving a swap ratio of 1 to 1.5778412. That is, <strong>SK Materials shareholders will receive 1.5778412 shares of SK Inc for each of their SK Materials share.</strong></p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap prices"}'>Swap prices</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=Terms!R[2]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=Terms!R[5]C[-1]">SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-month VWAP (July 20~August 19, 2021)"}'>1-month VWAP (July 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":270513}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩270,513</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":425992}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩425,992</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-week VWAP (August 13~19, 2021)"}'>1-week VWAP (August 13~19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":262714}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩262,714</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":420319}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩420,319</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-day close (August 19, 2021)"}'>1-day close (August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":259000}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩259,000</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":403700}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩403,700</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap price"}'><strong>Swap price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":264075.6666666667}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=sum(R[-3]C[0]:R[-1]C[0])/3"><strong>₩264,076</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":416670.3333333333}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=sum(R[-3]C[0]:R[-1]C[0])/3"><strong>₩416,670</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(A+B+C)/3"}'><strong>(A+B+C)/3</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p><strong>This event qualified as a small-scale merger.</strong> It means that the number of newly issued shares being transferred in a merger is less than the 10% threshold of the total issued shares.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="200">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Small scale merger qualification"}'>Small scale merger qualification</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NPS + Minority shareholders"}'><strong>SK Materials target shares: NPS + Minority shareholders</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3581000000000001}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-8]C[1]:R[-7]C[1])"><strong>35.81%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of shares to swap"}'>Number of shares to swap</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3776936}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-35]C[0]-5179535-1202-1590000">3,776,936</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'>Swap ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.5778412}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula="=R[-33]C[0]">1.5778412</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Number of shares to be issued"}'><strong>Number of shares to be issued by SK Inc</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5962879}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}'><strong>5,962,879</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of SK Inc SO"}'><strong>- % of SK Inc SO</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.08474778041371826}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-1]C[0]/R[-41]C[0]"><strong>8.47% (less than the 10% threshold)</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><div><div class="content-highlight">
<p><strong>Here are the benefits of a small-scale merger:</strong></p>
<ul>
<li>An acquiring entity (SK Inc) doesn't need shareholder approval, meaning that SK Inc shareholders won't be granted appraisal rights.</li>
<li>Only an acquired entity (SK Materials) needs shareholder approval, meaning that SK Materials shareholders get appraisal rights.</li>
<li>But SK Inc shareholders still get a right to oppose to this merger. If more than 20% of the shareholders oppose, an acquiring company should cancel the merger.</li>
</ul>
</div></div><p>This is the appraisal rights exercise price for SK Materials. As mentioned right above, SK Inc shareholders are not granted stock purchase rights.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase rights"}'>Stock purchase rights</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=Terms!R[-5]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=Terms!R[-2]C[-1]">SK Materials</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Note"}'>Note</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2-month VWAP (June 20~August 19, 2021)"}'>2-month VWAP (June 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":400942}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]' data-sheets-formula="=(R[3]C[0]*3)-sum(R[1]C[0]:R[2]C[0])">₩400,942</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"A"}'>A</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-month VWAP (July 20~August 19, 2021)"}'>1-month VWAP (July 20~August 19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":425992}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩425,992</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"B"}'>B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1-week VWAP (August 13~19, 2021)"}'>1-week VWAP (August 13~19, 2021)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":420319}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'>₩420,319</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"C"}'>C</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price"}'><strong>Exercise price</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'><strong>-</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":415751}' data-sheets-numberformat='[null,2,"[$₩-412]#,##0",1]'><strong>₩415,751</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"(A+B+C)/3"}'><strong>(A+B+C)/3</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART &amp; KRX"}'>Source: DART &amp; KRX</td></tr>
</tbody>
</table><p><strong>Below is the schedule. And the most important part is that we need to buy SK Materials shares until next Monday (August 23) to become eligible to exercise appraisal rights.</strong> It is important to note that the ex-rights date isn't the deadline for the stock purchase rights eligibility. The ex-rights date in this event is the deadline to become eligible to oppose to the merger.</p><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":"Schedule"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Schedule</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Inc"}' data-sheets-formula="=R[-15]C[0]">SK Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Materials Co Ltd"}' data-sheets-formula="=R[-12]C[-1]">SK Materials</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Last day to own stock purchase rights"}'><strong>Last day to own stock purchase rights</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'><strong>N/A</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44066}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2020. 08. 23</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ex-rights date"}'><strong>Ex-rights date</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2021. 09. 03</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44442}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'><strong>2021. 09. 03</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Record date of shareholder register"}'>Record date of shareholder register</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44445}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 06</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44445}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 09. 06</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dissenting opinion notice"}'><strong>Dissenting opinion notice</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 09. 06 ~ 09. 23"}'><strong>2021. 09. 06 ~ 09. 23</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 10. 14 ~ 10. 28"}'><strong>2021. 10. 14 ~ 10. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shareholder meeting"}'>Shareholder meeting</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44498}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 10. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise"}'><strong>Stock purchase right exercise</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'><strong>N/A</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 10. 29 ~ 11. 18"}'><strong>2021. 10. 29 ~ 11. 18</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension"}'>Trade suspension</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"2021. 11. 29 ~ 12. 24"}'>2021. 11. 29 ~ 12. 24</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"N/A"}'>N/A</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44557}' data-sheets-numberformat='{"1":5,"2":"yyyy. mm. dd","3":1}'>2021. 12. 27</td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table>

Event overviewWe have another stock swap event in Korea. SK Inc (SK Holdings) merges with SK Materials. SK Inc will be a surviving entity, and SK Materials will be dissolved. So yes, this is a nearly pure arb opportunity. I need to stress the word "Nearly" here, meaning that it isn't a 100% risk-free arb. But the only risk here is cancellation, which will be triggered by the stock purchase ceiling amount of ₩800.0B.





Swap overview

Type
Stock swap


Acquirer
SK Inc (034730 KS)


Target company
SK Materials (036490 KS)


Swap price for SK Inc
₩264,076


Swap price for SK Materials
₩416,670


Swap ratio
1.5778412


Stock purchase ceiling amount
₩0.80T


Exercise price - SK Inc
N/A


Exercise price - SK Materials
₩415,751

Source: DART

Below are the swap price calculations for both companies, giving a swap ratio of 1 to 1.5778412. That is, SK Materials shareholders will receive 1.5778412 shares of SK Inc for each of their SK Materials share.








Swap prices
SK Inc
SK Materials
Note


1-month VWAP (July 20~August 19, 2021)
₩270,513
₩425,992
A


1-week VWAP (August 13~19, 2021)
₩262,714
₩420,319
B


1-day close (August 19, 2021)
₩259,000
₩403,700
C


Swap price
₩264,076
₩416,670
(A+B+C)/3

Source: DART &amp; KRX

This event qualified as a small-scale merger. It means that the number of newly issued shares being transferred in a merger is less than the 10% threshold of the total issued shares.





Small scale merger qualification

SK Materials target shares: NPS + Minority shareholders
35.81%


Number of shares to swap
3,776,936


Swap ratio
1.5778412


Number of shares to be issued by SK Inc
5,962,879


- % of SK Inc SO
8.47% (less than the 10% threshold)

Source: DART


Here are the benefits of a small-scale merger:

An acquiring entity (SK Inc) doesn't need shareholder approval, meaning that SK Inc shareholders won't be granted appraisal rights.
Only an acquired entity (SK Materials) needs shareholder approval, meaning that SK Materials shareholders get appraisal rights.
But SK Inc shareholders still get a right to oppose to this merger. If more than 20% of the shareholders oppose, an acquiring company should cancel the merger.

This is the appraisal rights exercise price for SK Materials. As mentioned right above, SK Inc shareholders are not granted stock purchase rights.








Stock purchase rights
SK Inc
SK Materials
Note


2-month VWAP (June 20~August 19, 2021)
-
₩400,942
A


1-month VWAP (July 20~August 19, 2021)
-
₩425,992
B


1-week VWAP (August 13~19, 2021)
-
₩420,319
C


Exercise price
-
₩415,751
(A+B+C)/3

Source: DART &amp; KRX

Below is the schedule. And the most important part is that we need to buy SK Materials shares until next Monday (August 23) to become eligible to exercise appraisal rights. It is important to note that the ex-rights date isn't the deadline for the stock purchase rights eligibility. The ex-rights date in this event is the deadline to become eligible to oppose to the merger.







Schedule
SK Inc
SK Materials


Last day to own stock purchase rights
N/A
2020. 08. 23


Ex-rights date
2021. 09. 03
2021. 09. 03


Record date of shareholder register
2021. 09. 06
2021. 09. 06


Dissenting opinion notice
2021. 09. 06 ~ 09. 23
2021. 10. 14 ~ 10. 28


Shareholder meeting
N/A
2021. 10. 29


Stock purchase right exercise
N/A
2021. 10. 29 ~ 11. 18


Trade suspension
N/A
2021. 11. 29 ~ 12. 24


Listing
N/A
2021. 12. 27

Source: DART



A "Nearly" Pure Arb Opportunity: SK Holdings & SK Materials Stock Swap

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/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>, <a href="https://www.smartkarma.com/entities/geely-automobile-holdings-ltd" target="_blank" data-smartkarma-citation="entities:127:1" rel="noopener">Geely Auto (175 HK)</a>, <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a>, <a href="https://www.smartkarma.com/entities/cansino-biologics-inc" target="_blank" data-smartkarma-citation="entities:27739:1" rel="noopener">CanSino Biologics Inc (6185 HK)</a> and <a href="https://www.smartkarma.com/entities/zhongan-online-p-c-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:23681:1" rel="noopener">ZhongAn Online P&amp;C Insurance (6060 HK)</a> while there was short covering on <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/beijing-kuaishou-technology-co-ltd" target="_blank" data-smartkarma-citation="entities:29725:1" rel="noopener">Kuaishou Technology (1024 HK)</a>, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a>, <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> and <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a>. Shorts increased in the Consumer Discretionary, Health Care, Information Technology and Financials sectors while decreasing in the Communication Services, Real Estate and Consumer Staples sectors.</p></div><div><p>In Japan, stocks increased on <a href="https://www.smartkarma.com/entities/japan-post-bank-co-ltd" target="_blank" data-smartkarma-citation="entities:838:1" rel="noopener">Japan Post Bank (7182 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 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/odakyu-electric-railway-co-ltd" target="_blank" data-smartkarma-citation="entities:5405:1" rel="noopener">Odakyu Electric Railway (9007 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/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a>, <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a>, <a href="https://www.smartkarma.com/entities/kawasaki-kisen-kaisha-ltd" target="_blank" data-smartkarma-citation="entities:3548:1" rel="noopener">Kawasaki Kisen Kaisha (9107 JP)</a>, <a href="https://www.smartkarma.com/entities/nabtesco-corp" target="_blank" data-smartkarma-citation="entities:13176:1" rel="noopener">Nabtesco Corp (6268 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:15457:1" rel="noopener">Tokyo Electric Power Co (9501 JP)</a>. Shorts increased in the Industrials, Financials and Information Technology sectors.</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/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a>, <a href="https://www.smartkarma.com/entities/db-hitek-co-ltd" target="_blank" data-smartkarma-citation="entities:18926:1" rel="noopener">DB Hitek Co., Ltd. (000990 KS)</a>, <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> 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/amorepacific-corp" target="_blank" data-smartkarma-citation="entities:20854:1" rel="noopener">Amorepacific Corp (090430 KS)</a>, <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-innovation-co-ltd" target="_blank" data-smartkarma-citation="entities:1268:1" rel="noopener">SK Innovation (096770 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-household-health-care" target="_blank" data-smartkarma-citation="entities:6501:1" rel="noopener">LG Household &amp; Health Care (051900 KS)</a> and <a href="https://www.smartkarma.com/entities/kt-corp" target="_blank" data-smartkarma-citation="entities:1112:1" rel="noopener">KT Corp (030200 KS)</a>.</p></div><div><p>In Taiwan, shorts increased on <a href="https://www.smartkarma.com/entities/yageo-corporation" target="_blank" data-smartkarma-citation="entities:13212:1" rel="noopener">Yageo Corporation (2327 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/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/innolux-corp" target="_blank" data-smartkarma-citation="entities:4509:1" rel="noopener">Innolux Corp (3481 TT)</a> and <a href="https://www.smartkarma.com/entities/nuvoton-technology-corp" target="_blank" data-smartkarma-citation="entities:15913:1" rel="noopener">Nuvoton Technology (4919 TT)</a> while shorts covered on <a href="https://www.smartkarma.com/entities/taiwan-cement" target="_blank" data-smartkarma-citation="entities:19736:1" rel="noopener">Taiwan Cement (1101 TT)</a>, <a href="https://www.smartkarma.com/entities/ctbc-financial-holding-co-ltd" target="_blank" data-smartkarma-citation="entities:436:1" rel="noopener">Ctbc Financial Holding (2891 TT)</a>, <a href="https://www.smartkarma.com/entities/yang-ming-marine-transport" target="_blank" data-smartkarma-citation="entities:8502:1" rel="noopener">Yang Ming Marine Transport (2609 TT)</a>, <a href="https://www.smartkarma.com/entities/nanya-technology-corp" target="_blank" data-smartkarma-citation="entities:3269:1" rel="noopener">Nanya Technology (2408 TT)</a> and <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>.</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 Meituan (3690 HK), Geely Auto (175 HK), Postal Savings Bank of China (1658 HK), CanSino Biologics Inc (6185 HK) and ZhongAn Online P&amp;C Insurance (6060 HK) while there was short covering on Ping An Insurance (H) (2318 HK), Kuaishou Technology (1024 HK), NetEase (9999 HK), Country Garden Services Holdings (6098 HK) and China Overseas Land &amp; Investment Ltd (688 HK). Shorts increased in the Consumer Discretionary, Health Care, Information Technology and Financials sectors while decreasing in the Communication Services, Real Estate and Consumer Staples sectors.In Japan, stocks increased on Japan Post Bank (7182 JP), Toshiba Corp (6502 JP), Yaskawa Electric (6506 JP), Odakyu Electric Railway (9007 JP) and Mitsui Osk Lines (9104 JP) while there was short covering on freee (4478 JP), Sharp Corp (6753 JP), Kawasaki Kisen Kaisha (9107 JP), Nabtesco Corp (6268 JP) and Tokyo Electric Power Co (9501 JP). Shorts increased in the Industrials, Financials and Information Technology sectors.In Korea, shorts increased on NCSOFT Corp (036570 KS), Netmarble Corporation (251270 KS), DB Hitek Co., Ltd. (000990 KS), SK Telecom (017670 KS) and Samsung Electronics (005930 KS) while shorts were covered on Amorepacific Corp (090430 KS), Kakao Corp (035720 KS), SK Innovation (096770 KS), LG Household &amp; Health Care (051900 KS) and KT Corp (030200 KS).In Taiwan, shorts increased on Yageo Corporation (2327 TT), Mediatek Inc (2454 TT), Evergreen Marine Corp (2603 TT), Innolux Corp (3481 TT) and Nuvoton Technology (4919 TT) while shorts covered on Taiwan Cement (1101 TT), Ctbc Financial Holding (2891 TT), Yang Ming Marine Transport (2609 TT), Nanya Technology (2408 TT) and Wan Hai Lines (2615 TT).

Asia Shorts: Meituan, Geely, Kuaishou, COLI, Toshiba, Freee, NCSOFT, SK Tel, Yang Ming, Wan Hai, EMC

<h2>FY2021~2023 dividend policy</h2><p>SK Telecom held a 2Q earnings conference call and announced its dividend policy from this year to 2023 for the surviving company (SKT Opco). On the other hand, SKT Investment, a new company, said it plans not to pay a fixed dividend.</p><div class="content-highlight"><ul>
<li><strong>Total dividend amount = within 30~40% of annual EBITDA-CapEx (based on the surviving company's de-consolidated financials)</strong></li>
<li><strong>Starting the second quarter of this year, SKT will give out a quarterly dividend (likely to be equal-weighted)</strong></li>
</ul></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/318/original/Screen+Shot+2021-08-11+at+3.48.38+PM.png?1628712079" class="editor-image img-responsive" data-smartkarma-image-id="223318"></figure></section><p>The dividend policy for the next three years announced this time is not much different from what was already mentioned when the corporate spin-off was announced in May. However, this time, SKT revealed the size of the total annual dividend in more detail.</p><p>Last time, SKT provided rather vague guidance that it would maintain the surviving company's annual dividend at around ₩700B and keep an annual dividend per share at ₩10,000 <strong>for this year, but no specific guidance after this year.</strong></p><div class="content-highlight"><p><strong>However, this time, SKT presented a more specific criterion for calculating the total amount of dividends for the next three years. From this year to FY2023, SKT will fix the total annual dividend amount at 30~40% of the annual EBITDA-CapEx.</strong></p></div>

FY2021~2023 dividend policySK Telecom held a 2Q earnings conference call and announced its dividend policy from this year to 2023 for the surviving company (SKT Opco). On the other hand, SKT Investment, a new company, said it plans not to pay a fixed dividend.
Total dividend amount = within 30~40% of annual EBITDA-CapEx (based on the surviving company's de-consolidated financials)
Starting the second quarter of this year, SKT will give out a quarterly dividend (likely to be equal-weighted)
The dividend policy for the next three years announced this time is not much different from what was already mentioned when the corporate spin-off was announced in May. However, this time, SKT revealed the size of the total annual dividend in more detail.Last time, SKT provided rather vague guidance that it would maintain the surviving company's annual dividend at around ₩700B and keep an annual dividend per share at ₩10,000 for this year, but no specific guidance after this year.However, this time, SKT presented a more specific criterion for calculating the total amount of dividends for the next three years. From this year to FY2023, SKT will fix the total annual dividend amount at 30~40% of the annual EBITDA-CapEx.

SKT FY21~23 Dividend Policy 30~40% of EBITDA-CapEx: Valuation Studies

South Korea

SK Telecom Co., Ltd. is a Korean mobile and telecommunications operator. The Company provides cellular voice, wireless data, and wireless internet services. SK Telecom also offers fixed line services and platform services.

Price Gauge
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SK Telecom (SKM US)

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