This article was published on Jan. 3, 2025, at 4:31 p.m. on the CHOSUNBIZ Moneymove (MM) site.
There are opinions emerging that Hanwha's attempt to acquire OURHOME is a "reckless move." Analysts indicate that not only is the corporate value set at 1.5 trillion won excessively high, but the synergy from the acquisition is also unclear. Moreover, it is expected that even if Hanwha purchases the agreed equity, they will struggle to enhance corporate value due to lacking complete control over management.
According to the investment banking (IB) industry on the 3rd, Hanwha Hotels and Resorts, led by Vice President Kim Dong-seon, the third son of Hanwha, is pursuing the acquisition of OURHOME. The target for acquisition is the 58% equity held by former Vice Chairman Koo Bon-seong and Chairman Koo Mi-hyun. Hanwha also hopes to acquire the 20.67% equity of former Vice Chairman Koo Ji-eun and 19.6% equity of former Director Koo Myung-jin.
The industry is expressing mixed concerns regarding Hanwha's acquisition of OURHOME. Firstly, the prevalent opinion is that the valuation set by Hanwha for OURHOME is too high. The average price-to-earnings ratio (PER) of listed companies such as CJ Freshway, Hyundai Green Food, and Shinsegae Food, which operate in the group meal business, based on the last four quarters of performance, is 2.91. Even considering the record-high operating profit OURHOME recorded last year, its corporate value exceeds five times that of competitors.
It is also problematic that even purchasing the agreed equity would make exercising significant management rights difficult. According to OURHOME's articles of incorporation, decisions on major issues require the consent of more than two-thirds of the total issued shares. This requirement applies to major management activities such as capital increases, reductions, mergers, partitioning, and business transfers, while the equity reached through the acquisition agreement is merely 58%. Most importantly, the strong management will of former Vice Chairman Koo Ji-eun remains an obstacle.
An IB industry official noted, "Hanwha Hotels and Resorts' financial situation is not good, so borrowing will be inevitable for the acquisition, which would worsen the financial structure," adding, "The synergy through the acquisition is unclear, and in a situation where various issues, such as preemptive rights, remain unresolved, it is puzzling why they are pushing for the acquisition." A private investor expressed concern, stating, "I'm worried that Hanwha Hotels and Resorts or Hanwha Galleria might not engage in a large capital increase."
The involvement of financial investors (FIs) is also a burden. It is reported that IMM Credit Solutions (ICS), a private equity fund (PEF) management company, is expected to deploy about 200 billion to 300 billion won to support Hanwha's acquisition of OURHOME. While there is a significant chance that the support will be in the nature of loans, it ultimately represents money that Hanwha will need to repay at some point.
If OURHOME's performance significantly improves, a "beautiful separation" may be possible, but the path is not easy. The group meal business is considered stable, but it is also regarded as a sector where explosive enhancement of corporate value is not easy. In fact, OURHOME's consolidated revenue for 2023 is 1.9835 trillion won, but its operating profit is only 94.3 billion won, translating to an operating profit margin of just 5%.
If they fail to increase corporate value, there is a risk that they may have to rely on shareholders Hanwha and Hanwha Solutions to repay FI funds. As of the third quarter, Hanwha Hotels and Resorts has only 129.4 billion won in cash and cash equivalents. Hanwha and Hanwha Solutions hold 49.8% and 49.57% equity in Hanwha Hotels and Resorts, respectively.
It is also uncertain whether ICS will succeed in raising the fund. Institutional investors that would commit to the fund are aware that OURHOME's valuation is high. Another official in the IB industry commented, "While the investment is close to a loan, which might prevent downward risk, the expected return does not appear to be high," adding, "It may depend on perspective, but if it's a blind fund, it could be different; however, for a project fund, it seems that there may not be many institutional investors willing to commit."
Meanwhile, there are forecasts that former Vice Chairman Koo may team up with FIs for a counterattack. If former Vice Chairman Koo exercises preemptive rights, he can acquire 100% of the equity in OURHOME. Based on OURHOME's corporate value of 1.5 trillion won, it would be necessary to gather about 630 billion won (42% equity) along with the FIs. It is reported that former Vice Chairman Koo has already contacted several PEF management companies.
An official from Hanwha Hotels and Resorts responded, "Various institutional sectors are under review, but nothing has been concretely decided," while an official from OURHOME stated, "We have no specific position regarding the acquisition."