LG Electronics has begun a tender offer process that would allow it to raise its equity in its grandchild company Alphonso to 100%. Alphonso is operated by Zenith, a wholly owned subsidiary of LG Electronics' U.S. unit, which holds 65.4% equity, and runs the connected TV (CTV) advertising platform "LG Ad Solutions." It posted more than 900 billion won in revenue last year, emerging as a core affiliate. Since joining in 2020, it has played a central role in improving the profitability of the LG smart TV platform "webOS"-based business, but disputes have persisted, including the founders filing a damages suit against LG Electronics.
According to a compilation of ChosunBiz reporting on the 2nd, LG Electronics on Mar. 31 launched a tender offer via Zenith to acquire additional Alphonso equity. It is understood to be working to set the per-share purchase price. Once the price is set, existing shareholders will decide whether to participate in the tender offer within 20 business days. Through this tender offer, LG Electronics can acquire all of the noncontrolling equity (34.6%) held by Alphonso employees and executives. However, the equity sale is not mandatory, so the actual change in control is expected to be determined by the final settlement deadline of Aug. 15.
Through Zenith, LG Electronics invested about $80 million (about 87 billion won at the time) in Alphonso in Dec. 2020, securing 56.4% equity. This tender offer is being carried out under a shareholders' agreement signed during the initial investment. The agreement includes a clause requiring Zenith, if existing Alphonso shareholders wish, to purchase their equity three times in total at the end of March each year starting in 2024. The sale cap increases in the order of 33% (year 1)→66% (year 2)→100% (year 3) of the shares held. The year 1 tender offer process has been completed, and Zenith acquired an additional 1,315,626 Alphonso shares at $87.975 per share, raising its stake to 65.4%.
The shareholders' agreement also stipulates the procedure for calculating the per-share purchase price. The structure sets the price at the higher of the amount reflecting the company's value at the time of acquisition and the fair price determined by a board resolution. If the board fails to set a fair price, accounting firms appointed by a director representing existing Alphonso shareholders and a director representing Zenith will each calculate a price. If the difference between the two prices is within 10%, the average becomes the final purchase price. If the difference is 10% or more, another accounting firm is engaged for a reassessment. That yields a total of three fair prices, and the final purchase price is set by selecting the two closest and averaging them.
The market largely expected LG Electronics would be unable to proceed with this third tender offer. That is because the agreement includes a condition that it terminates if Alphonso conducts an initial public offering (IPO). Alphonso founder Ashish Chordia held a press briefing in Korea in Aug. last year and said the company would list on a U.S. exchange in the second half of 2025. A month after the briefing, the company privately filed an S-1 registration statement with the U.S. Securities and Exchange Commission (SEC), kicking off the IPO process in earnest. But as the IPO progressed slowly, the date for the final tender offer arrived, and LG Electronics moved under the agreement to secure additional equity.
◇ Will it end or deepen the infighting… the key is price
The fact that Alphonso's founders have filed various lawsuits against LG Electronics, fueling internal strife, is seen as a variable for this tender offer.
Alphonso's cofounders filed suit in the Delaware Court of Chancery about two years after the acquisition, saying LG Electronics tried to strip their right to nominate directors through dismissals. In Mar. last year, the Delaware Supreme Court ruled that LG Electronics' attempt to remove Alphonso's founders from the board was void. The founders have also continued follow-up lawsuits, claiming LG Electronics delayed the IPO or distorted the valuation of the shares.
If LG Electronics achieves full integration of Alphonso through this tender offer, such disputes would be resolved. Faster decision-making and revenue distribution also stand to benefit the company, so it is advantageous for LG Electronics to secure as much equity as possible through this tender offer.
The issue is price. An industry source familiar with the matter said, "The prevailing view is that Alphonso's founders filed various lawsuits against LG Electronics with an eye to exiting on better terms," adding, "How much the per-share price of this final tender offer comes in at will affect whether disputes continue."
Alphonso, which began in 2012 in Mountain View, California, as an advertising and content data analytics firm, achieved full-fledged growth after joining LG Group. That is because it was able to expand its business based on the ecosystem of more than 200 million LG smart TVs equipped with LG Electronics' webOS. LG Ad Solutions, which it operates, can collect and analyze viewers' content consumption patterns in real time based on automatic content recognition (ACR) technology, enabling "targeted advertising." Major clients are advertisers seeking to place ads through LG smart TVs. Competitors include Samsung Ads and Roku. Alphonso's revenue last year was 934 billion won, up 19.4% from the previous year (782 billion won). During this period, net profit was 147.1 billion won, a slight decrease from the previous year (147.4 billion won).
A LG Electronics official said, "Alphonso, a grandchild company, has begun the third-year tender offer process under the shareholders' agreement," adding, "We will continue to respect shareholders' rights and provide support where needed."