CJ CGV's Asia regional holding company, CGI Holdings, is facing a forced sale crisis. CGI Holdings' financial investors (FIs) notified CJ CGV that they would exercise their rights to sell the equity held by the majority shareholder, CJ CGV, along with the stake.
According to investment banking (IB) industry sources on the 22nd, MBK Partners, the second-largest shareholder of CGI Holdings, and Mirae Asset Securities recently notified CJ CGV that they would exercise their drag-along rights on the equity of CGI Holdings.
According to the shareholder agreement between both parties, the drag-along rights became exercisable starting from the 19th of last month. CJ CGV will propose whether to exercise its call option and the price to the second-largest shareholder within 10 business days of notifying them of the drag-along exercise. If the second-largest shareholder does not accept the proposed price, the forced sale will be confirmed.
MBK Partners and Mirae Asset Securities secured 28.57% of the equity in CGI Holdings by investing 333.6 billion won in 2019. At that time, they stipulated that CGI Holdings must be listed on the Hong Kong Stock Exchange with a corporate value of over 2 trillion won by June 2023.
The initial public offering (IPO) for CGI Holdings failed due to the global film market slump caused by the COVID-19 pandemic. The FIs were given the right to have CJ CGV guarantee a certain return and repurchase their equity (the call option) or to sell to a third party combined with the stake of the majority shareholder if the IPO failed.
CJ repaid 126.3 billion won to the FIs last year while extending the drag-along exercise period. As a result, the second-largest shareholder's equity in CGI Holdings decreased to 17.58%.
The industry expects the likelihood of CJ CGV exercising the call option to be low. This is because it may be more advantageous to sell the equity of CGI Holdings in the market than to guarantee a return and repurchase the shares. During prior discussions, it was reported that CJ offered a price lower than what the FIs anticipated for internal rate of return (IRR).
An IB industry source noted, 'Even if CJ CGV exercises the call option, it will likely only propose a price that merely covers the acquisition financing of existing investors,' adding, 'Currently, the film business is not a top priority for the CJ Group.'