As more corporations are using tender offers with the aim of delisting, how closely the offer price matches the corporate value that minority shareholders feel is emerging as the key factor that determines success or failure.
While offer prices that match what management receives or reflect growth potential are getting positive reviews, cases continue in which prices that do not even reach book value spark shareholder backlash.
According to the Financial Supervisory Service's Data Analysis, Retrieval and Transfer System (DART) on the 7th, global private equity fund (PEF) Bain Capital is conducting a tender offer for ECHOMARKETING shares at 16,000 won per share through the 21st of this month. Earlier, Bain Capital signed a deal through a special purpose company (SPC) to acquire about 44% management-control equity in ECHOMARKETING from the largest shareholder and others, and plans to push for delisting after a tender offer for the remaining 56% held by minority shareholders.
The tender offer for ECHOMARKETING is receiving relatively positive reviews in the market. Bain Capital's offer price is 16,000 won per share, reflecting about a 49.5% premium to the closing price (10,700 won) on the day before the disclosure. In particular, it is the same price applied to the founder's equity, drawing a contrast with some past tender offers that granted a control premium only to major shareholders.
In addition, the offer price is seen as not bad relative to fair corporate value. Considering that brokerages' 12-month target prices for ECHOMARKETING over the past six months ranged from 12,500 to 17,000 won, the offer sits at the top end of the consensus. The price-to-book ratio (PBR) based on the offer is about 2 times, suggesting some reflection of future growth that is not recorded on the books.
By contrast, Emart's tender offer for Shinsegae Food, which ended on the 5th, faced the chronic "fire-sale controversy." Emart, the largest shareholder with 55.47% equity in its subsidiary Shinsegae Food, is seeking to delist by buying the remaining minority equity through a tender offer. The price Emart offered is 48,120 won per share, about a 20% premium to the closing price (40,100 won) on the trading day right before the disclosure.
Investor reaction, however, is cold. Despite a 20% premium to the prior share price, the price offered is far below investors' average purchase cost.
According to NH Investment & Securities, the average purchase cost for 1,385 Shinsegae Food investors is 71,729 won. Even based on the day's sharp rise, 83% of investors are still in the red, with an average return of minus 25.21%. That is why some investors criticize it as a "delisting that makes it impossible to recover even principal, let alone profits."
The gap with target prices from the securities industry is also wide. In the six months just before the tender offer, major brokerages set 12-month target prices for Shinsegae Food at 50,000 to 58,000 won. Lee Kyung-shin, an iM Securities researcher, said, "Setting aside short-term external factors, efforts to improve standalone revenue remain valid," and noted, "Cash inflows from selling the main business unit and a business overhaul will be factors that command a valuation premium."
The problem is that the price Emart offered is also detached from the corporation's intrinsic value. Based on the offer, Shinsegae Food's price-to-book ratio (PBR) is about 0.59 times, barely above half of book value. Critics say the company is effectively securing equity at a bargain in a market that fails to reflect a corporation's intrinsic value.
A representative of a minority shareholder alliance said, "A method that simply adds a certain level of premium to market prices ultimately forces minority shareholders to dispose of equity at undervalued prices."
Park Yong-rin, vice president at the Korea Capital Market Institute, said, "Tender offers and comprehensive share exchanges were not designed for voluntary delistings, so there are no separate safeguards for minority shareholders," and added, "Rather than presenting a certain percentage (%) premium, we should move toward disclosing the exact reasons for the price with concrete formulas and explanations."