Recently, as listed companies such as Shinsegae Food and Kolon Mobility Group have launched tender offers with the goal of delisting, related stocks have continued to surge. As the tender offer prices proposed by the corporations were set higher than current share prices, buyers seeking certain arbitrage profits have piled in.
However, experts advise paying attention to the tax burden that arises when participating in a tender offer. Tender offers are regarded as "over-the-counter transactions," so they are subject to relatively higher tax rates than on-exchange sales. Therefore, because the expected rate of return may decline, if the share price is already near the tender offer price, selling on the exchange rather than accepting the tender offer is said to be more advantageous in practical terms.
According to the Korea Exchange (KRX) on the 18th, Shinsegae Food jumped more than 19% to close at 47,800 won on the 15th from the prior trading day. The stock surged after major shareholder Emart (equity stake 55.47%) disclosed it would conduct a tender offer for Shinsegae Food shares.
The tender offer price is 48,120 won per share, set 20% higher than the closing price (40,100 won) on the 12th, the trading day immediately before the start date of the tender offer.
Typically, when a tender offer is flagged, the share price tends to rise toward the tender offer price. Because tender offer prices are often set with a 20%–30% premium to recent share prices, investors buy in expecting "locked-in profits." On top of that, if the tender offeror judges it difficult to secure the target equity, expectations that the tender offer price could be raised are also reflected in the stock.
That said, experts advise that if you accept a tender offer, you must factor in the "over-the-counter transaction risk." Tender offers are classified as over-the-counter transactions, so the security transaction tax rate is 0.35%, a heavier tax burden than on-exchange transactions (KOSPI 0.15%).
For example, if you sell 100 million won worth of shares on the exchange, the security transaction tax (including the agricultural and fisheries special tax) is 150,000 won, but if you accept a tender offer, 350,000 won is levied. As a result, the actual amount you take home could be smaller than expected, some noted.
Capital gains tax imposed on over-the-counter transactions is also a burden. On-exchange transactions are not subject to capital gains tax unless you are a large shareholder, but if capital gains from over-the-counter transactions and the like exceed 2.5 million won per year, 22% capital gains tax is levied on the excess. Unlike the security transaction tax, capital gains tax is not withheld at source and must be paid directly.
For this reason, the smaller the investment size, especially for individual investors, the more advantageous it is to sell on the exchange rather than accept a tender offer when prices are close to the tender offer level.
A financial investment industry official said, "Rather than participating unconditionally just by looking at the tender offer price, you should calculate the actual profit after taxes," adding, "When prices are near the tender offer level, it is worth considering reducing risk through on-exchange selling rather than unnecessarily accepting over the counter."