Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<p>We know that the Korea National Pension Service (NPS) is the nation's largest institutional investor, responsible for about 7% of the local equity market. But we often overlook the fact that it is also one of the largest institutional investors in the global coal industry.</p><p>According to the joint report by several environmental organizations, including Urgewald and Reclaim France, the NPS is, in fact, the world's 11th-largest investor in the coal industry. The NPS currently invests ₩12.7T in total on the coal-related bonds and equity, of which ₩4T are invested in equity.</p><p>There is news that the NPS will introduce a negative screening on the coal investment as early as the second half of this year.</p><p>The upcoming Fund Management Committee meeting, chaired by the Minister of Health and Welfare of South Korea, is scheduled for April 30. It is the highest-level investment decision-making body within the NPS. The negative screening is officially one of the proposals to be discussed in the April 30 meeting.</p><p style="text-align: center;"><strong>The Korea NPS governance structure</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/203/038/original/1.png?1619531424" class="editor-image img-responsive" data-smartkarma-image-id="203038"></figure></section><div class="content-caption">(Courtesy Korea NPS)</div><p>The chances are pretty high, given the current political mood under the left-winged administration. Coal will be a starter, likely followed by tobacco and mass destruction weapons soon.</p>

We know that the Korea National Pension Service (NPS) is the nation's largest institutional investor, responsible for about 7% of the local equity market. But we often overlook the fact that it is also one of the largest institutional investors in the global coal industry.According to the joint report by several environmental organizations, including Urgewald and Reclaim France, the NPS is, in fact, the world's 11th-largest investor in the coal industry. The NPS currently invests ₩12.7T in total on the coal-related bonds and equity, of which ₩4T are invested in equity.There is news that the NPS will introduce a negative screening on the coal investment as early as the second half of this year.The upcoming Fund Management Committee meeting, chaired by the Minister of Health and Welfare of South Korea, is scheduled for April 30. It is the highest-level investment decision-making body within the NPS. The negative screening is officially one of the proposals to be discussed in the April 30 meeting.The Korea NPS governance structure(Courtesy Korea NPS)The chances are pretty high, given the current political mood under the left-winged administration. Coal will be a starter, likely followed by tobacco and mass destruction weapons soon.

Shorting Alert Amid Korea NPS Negative Screening on Coal: KEPCO, GS, OCI, Kumho P, LG Int, & POSCO

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<div class="content-highlight"><p>In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.</p></div><p>Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. </p><p>Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. </p><div class="content-highlight">
<p>In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).</p>
<p>In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  </p>
</div><p>Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. </p>

In this insight, we highlight the closing of the pricing gaps between the major Korean holdcos and opcos, especially with the upcoming end of the ban on the short selling of shares in Korea in May. In this insight, we highlight 26 pair trades that involve Korean holdcos and opcos.Just a reminder that the ban on short selling of KOSPI 200 and KOSDAQ 150 included stocks will remain in place until May 2nd and investors will be able to resume their shorting on these 350 stocks starting on May 3rd. Once this ban on short selling of stocks ends, there could be more investors that may look to add to the holdco shares and short the opco shares (especially among the pairs where the holdco shares have underperformed the opco shares in the past year). However, some of these moves have already started to take place in the past few weeks, which could reduce the overall profits on the pair trades. Traditionally, the pair trades involving Korean holdcos and opcos have been a trading strategy that many hedge funds have employed for many years. However, the ban on short selling of stocks in Korea have prevented many of these funds from employing these pair trade strategies. Once the ban ends, you will likely see these funds becoming more active in these trading methods once again. 
In the section below, we separated the pair trades into two different sections. The first table involves major opcos outperforming holdcos (regular and quasi) in the past year. Of the 26 pair trade strategies mentioned in this insight, this section I involves 19 of them (73% of total). The section II (which involve holdcos outperforming the opcos in the past year) involves 7 pair trade strategies (27% of total).
In other words, the opcos in general have vastly outperformed the holdcos in the past year, especially due to the ban on the short selling of stocks in Korea. Because the opcos tend to be the bigger company than the holdcos in terms of market cap, many fund managers (both active and passive) have tended to just invest in the opcos and pay less attention to the holdcos.  
Also, we described the holdcos as either regular or quasi. SK Telecom and Samsung C&amp;T would be examples of "quasi" holdcos whereas Orion Holdings and Hanjin Kal would be examples of regular holdcos. 

Closing the Gap: Korean Holdcos Vs. Opcos

Equity Bottom-Up

<div class="content-highlight"><p>In this insight, we provide a sum-of-the-parts (SoTP) valuation analysis of <a href="https://www.smartkarma.com/entities/gs-holdings" target="_blank" data-smartkarma-citation="entities:18524:1" rel="noopener">Gs Holdings (078930 KS)</a>. <strong>Our SoTP valuation analysis suggests a target price of 50,783 won per share for GS Holdings, representing a 34% upside from the current levels. We are including GS Holdings in our model portfolio. </strong></p></div><p>The SoTP valuation is broken down into 5 major components:</p><p style="padding-left: 25px;"><strong>A) Value of Public Companies (2.1 trillion won)</strong></p><p style="padding-left: 25px;"><strong>B) Value of Private Companies (3.2 trillion won) </strong></p><p style="padding-left: 25px;"><strong>C) Value of GS Holdings' Core Business (1.5 trillion won) </strong></p><p style="padding-left: 25px;"><strong>D) Net Debt (571 billion won)</strong></p><p style="padding-left: 25px;"><strong>E) Holdco Discount (25%)</strong></p><div class="content-highlight">
<p>The three key catalysts of GS Holdings are as follows:</p>
<ul>
<li>The merger between GS Retail and GS Home Shopping</li>
<li>Insiders have been actively buying shares of GS Holdings in 2020</li>
<li>Turnaround of the GS Energy business in 2021</li>
</ul>
</div>

In this insight, we provide a sum-of-the-parts (SoTP) valuation analysis of Gs Holdings (078930 KS). Our SoTP valuation analysis suggests a target price of 50,783 won per share for GS Holdings, representing a 34% upside from the current levels. We are including GS Holdings in our model portfolio. The SoTP valuation is broken down into 5 major components:A) Value of Public Companies (2.1 trillion won)B) Value of Private Companies (3.2 trillion won) C) Value of GS Holdings' Core Business (1.5 trillion won) D) Net Debt (571 billion won)E) Holdco Discount (25%)
The three key catalysts of GS Holdings are as follows:

The merger between GS Retail and GS Home Shopping
Insiders have been actively buying shares of GS Holdings in 2020
Turnaround of the GS Energy business in 2021



GS Holdings SoTP Valuation Analysis & Three Key Catalysts

<p>GS announced a merger of Retail (007070) and Home Shopping (028150) at a swap ratio of 4.2236834.</p><p>GS Holdings (078930) owns both subsidiaries.</p><p>They set the purchase right ceiling at <strong>₩350B</strong><strong>combined</strong>, about 8% of the combined MC.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Overview (₩B)"}'>Overview (₩B)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Type"}'>Type</td>
<td data-sheets-value='{"1":2,"2":"Stock swap"}'>Stock swap</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Acquirer"}'>Acquirer</td>
<td data-sheets-value='{"1":2,"2":"GS Retail Co Ltd"}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Retail Co Ltd</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Ticker"}'>- Ticker</td>
<td data-sheets-value='{"1":2,"2":"007070"}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='="007070"'>007070</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - SO"}'>- SO</td>
<td data-sheets-value='{"1":3,"3":77000000}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='=googlefinance(R[-1]C[0], "shares")'>77,000,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target company"}'>Target company</td>
<td data-sheets-value='{"1":2,"2":"GS Home Shopping Inc."}' data-sheets-formula='=googlefinance(R[1]C[0], "name")'>GS Home Shopping, Inc.</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Ticker"}'>- Ticker</td>
<td data-sheets-value='{"1":2,"2":"028150"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}' data-sheets-formula='="028150"'>028150</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - SO"}'>- SO</td>
<td data-sheets-value='{"1":3,"3":6562500}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula='=googlefinance(R[-1]C[0], "shares")'>6,562,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering share type"}'>Offering share type</td>
<td data-sheets-value='{"1":2,"2":"Acquirer ordinary share"}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>Acquirer ordinary share</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering price"}'>Offering price</td>
<td data-sheets-value='{"1":3,"3":33800}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>₩33,800</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering volume"}'>Offering volume</td>
<td data-sheets-value='{"1":3,"3":27717922.312499996}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=sum(R[1]C[0]:R[2]C[0])">27,717,922</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Treasury"}'>- Treasury</td>
<td data-sheets-value='{"1":3,"3":2530831.0932799997}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=599200*R[7]C[0]">2,530,831</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Ordinary"}'>- Ordinary</td>
<td data-sheets-value='{"1":3,"3":25187091.219219998}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[4]C[0]*R[6]C[0]-R[-1]C[0]">25,187,091</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Offering value"}'>Offering value</td>
<td data-sheets-value='{"1":3,"3":936.8657741624999}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-formula="=R[-4]C[0]*R[-3]C[0]/1000000000">936.9</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target share type"}'>Target share type</td>
<td data-sheets-value='{"1":2,"2":"Target company ordinary share"}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>Target company ordinary share</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target price"}'>Target price</td>
<td data-sheets-value='{"1":3,"3":142762}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>₩142,762</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Target volume"}'>Target volume</td>
<td data-sheets-value='{"1":3,"3":6562500}' data-sheets-numberformat='{"1":2,"2":"#,##0","3":1}' data-sheets-formula="=R[-9]C[0]">6,562,500</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - % of SO"}'>- % of SO</td>
<td data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-1]C[0]/R[-10]C[0]">100.00%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Swap ratio"}'><strong>Swap ratio</strong></td>
<td data-sheets-value='{"1":3,"3":4.2236834}' data-sheets-numberformat='{"1":2,"2":"#,##0.0000000","3":1}'><strong>4.2236834</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase ceiling condition"}'><strong>Stock purchase ceiling condition</strong></td>
<td data-sheets-value='{"1":2,"2":"If exceeds for both combined"}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'><strong>If exceeds for both combined</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Amount"}'><strong>- Amount</strong></td>
<td data-sheets-value='{"1":3,"3":350}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'><strong>350.0</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - GS Retail Co Ltd"}' data-sheets-formula='="Exercise price - "&amp;R[-19]C[1]'>Exercise price - GS Retail Co Ltd</td>
<td data-sheets-value='{"1":3,"3":34125}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>₩34,125</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Exercise price - GS Home Shopping Inc."}' data-sheets-formula='="Exercise price - "&amp;R[-17]C[1]'>Exercise price - GS Home Shopping Inc.</td>
<td data-sheets-value='{"1":3,"3":138855}' data-sheets-numberformat='{"1":2,"2":"[$₩-412]#,##0","3":1}'>₩138,855</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>For purchase rights, today is the last day to become eligible.</p><p>The ex-rights falls on April 16 next year, followed by the dissenting opinion notice on May 13~27. The shareholder meeting is on May 28.</p><p>The new shares will be listed on July 16.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Timetable"}' data-sheets-note="Sang Hyun Park: We have to buy shares until BOD+1 to be eligible to receive stock purchase rights. We then have to notify our dissenting opinion until the end of dissenting opinion notice period.">Timetable</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"BOD meeting"}'>BOD meeting</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44145}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2020. 11. 10</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Last day to own stock purchase rights"}'><strong>Last day to own stock purchase rights</strong></td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44146}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2020. 11. 11</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Ex-rights date"}'><strong>Ex-rights date</strong></td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44302}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 4. 16</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Record date of shareholder register"}'>Record date - shareholder register</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44305}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 4. 19</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dissenting opinion notice begins"}'>Dissenting opinion notice begins</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44329}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 13</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dissenting opinion notice ends"}'>Dissenting opinion notice ends</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44343}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 27</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EGM"}'><strong>EGM</strong></td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'><strong>2021. 5. 28</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise begins"}'>Stock purchase right exercise begins</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44344}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 5. 28</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Stock purchase right exercise ends"}'>Stock purchase right exercise ends</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44364}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 6. 17</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension begins - GS Home Shopping"}'>Trade suspension begins - GS Home Shopping</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44376}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 6. 29</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Trade suspension ends - GS Home Shopping"}'>Trade suspension ends - GS Home Shopping</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44392}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 15</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Listing"}'>Listing</td>
<td style="text-align: left;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 16</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>GS Holdings retains 36.1% in Home Shopping and 65.8% in Retail.</p><p>I don't see a reason for the NPS to vote against the merger. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping.</p><p>A fierce proxy fight? It is unlikely.</p><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Shareholding - target company"}'>Shareholding - target company (GS Home Shopping)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GS Holdings Corp"}' data-sheets-formula='=googlefinance("078930", "name")'><strong>GS Holdings Corp</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.36097523809523807}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=2368900/R8C2"><strong>36.10%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korea NPS"}'>Korea NPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0500728380952381}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=328603/R8C2">5.01%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Bearing Asset Management"}'>Bearing Asset Management</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.05017005714285714}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(301839+25544+1858)/R8C2">5.02%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korean Air Lines Co Ltd"}' data-sheets-formula='=googlefinance("003490", "name")'>Korean Air Lines Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.045008761904761906}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=295370/R8C2">4.50%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hanjin Transportation Co., Ltd."}' data-sheets-formula='=googlefinance("002320", "name")'>Hanjin Transportation Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.034991238095238096}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=229630/R8C2">3.50%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Treasury shares"}'>Treasury shares</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.007781818181818181}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=599200/R5C2">0.78%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: FnGuide</td></tr>
</tbody>
</table><table class="table table-striped">
<colgroup>
<col width="300">
<col width="300">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Shareholding - acquirer"}'>Shareholding - acquirer (GS Retail)</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"GS Holdings Corp"}' data-sheets-formula='=googlefinance("078930", "name")'><strong>GS Holdings Corp</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6575122077922078}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=50628440/R5C2"><strong>65.75%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Special affiliated persons"}'>Special affiliated persons</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.00025974025974025974}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=20000/R5C2">0.03%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Major shareholder"}'>- Major shareholder</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.657771948051948}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=sum(R[-2]C[0]:R[-1]C[0])">65.78%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Korea NPS"}'>Korea NPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.060418987012987015}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=4652262/R5C2">6.04%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: FnGuide</td></tr>
</tbody>
</table>

GS announced a merger of Retail (007070) and Home Shopping (028150) at a swap ratio of 4.2236834.GS Holdings (078930) owns both subsidiaries.They set the purchase right ceiling at ₩350Bcombined, about 8% of the combined MC.





Overview (₩B)

Type
Stock swap


Acquirer
GS Retail Co Ltd


- Ticker
007070


- SO
77,000,000


Target company
GS Home Shopping, Inc.


- Ticker
028150


- SO
6,562,500


Offering share type
Acquirer ordinary share


Offering price
₩33,800


Offering volume
27,717,922


- Treasury
2,530,831


- Ordinary
25,187,091


Offering value
936.9


Target share type
Target company ordinary share


Target price
₩142,762


Target volume
6,562,500


- % of SO
100.00%


Swap ratio
4.2236834


Stock purchase ceiling condition
If exceeds for both combined


- Amount
350.0


Exercise price - GS Retail Co Ltd
₩34,125


Exercise price - GS Home Shopping Inc.
₩138,855

Source: DART

For purchase rights, today is the last day to become eligible.The ex-rights falls on April 16 next year, followed by the dissenting opinion notice on May 13~27. The shareholder meeting is on May 28.The new shares will be listed on July 16.





Timetable

BOD meeting
2020. 11. 10


Last day to own stock purchase rights
2020. 11. 11


Ex-rights date
2021. 4. 16


Record date - shareholder register
2021. 4. 19


Dissenting opinion notice begins
2021. 5. 13


Dissenting opinion notice ends
2021. 5. 27


EGM
2021. 5. 28


Stock purchase right exercise begins
2021. 5. 28


Stock purchase right exercise ends
2021. 6. 17


Trade suspension begins - GS Home Shopping
2021. 6. 29


Trade suspension ends - GS Home Shopping
2021. 7. 15


Listing
2021. 7. 16

Source: DART

GS Holdings retains 36.1% in Home Shopping and 65.8% in Retail.I don't see a reason for the NPS to vote against the merger. Combining the NPS and the friendly shareholders (Hanjin), the controlling stake reaches 72% for Retail and 50% for Home Shopping.A fierce proxy fight? It is unlikely.





Shareholding - target company (GS Home Shopping)

GS Holdings Corp
36.10%


Korea NPS
5.01%


Bearing Asset Management
5.02%


Korean Air Lines Co Ltd
4.50%


Hanjin Transportation Co., Ltd.
3.50%


Treasury shares
0.78%

Source: FnGuide







Shareholding - acquirer (GS Retail)

GS Holdings Corp
65.75%


Special affiliated persons
0.03%


- Major shareholder
65.78%


Korea NPS
6.04%

Source: FnGuide



GS Retail/Home Shopping Merger Swap: Currently at 3.4% Div-Adj. Spread

<p>It was announced after the market close on 10 November that <a href="https://www.smartkarma.com/entities/gs-retail-co-ltd" target="_blank" data-smartkarma-citation="entities:3867:1" rel="noopener">GS Retail (007070 KS)</a> will merge with <a href="https://www.smartkarma.com/entities/gs-home-shopping-inc" target="_blank" data-smartkarma-citation="entities:3916:1" rel="noopener">Gs Home Shopping (028150 KS)</a>. GS Retail and GS Home Shopping have market caps of  2.6 trillion won (US$2.3 billion) and 0.9 trillion won (US$0.8 billion), respectively. GS Retail's main businesses include offline retail supermarkets (GS THE FRESH), CVS stores (GS 25), and logistics warehouses. GS Home Shopping's main businesses include home shopping and online e-commerce services. After the merger date, 4.2236834 common stock of GS Retail will be issued for 1 share of GS Home Shopping shares listed in GS Homeshopping's shareholder list. </p><p>We believe that the merger between GS Retail and GS Home Shopping is a positive catalyst. Both companies have been negatively impacted by the barrage of heavy competition, especially among e-commerce driven companies such as Coupang, Naver, and Kurly in the past several years. The traditional brick and mortar competitors including Emart and Lotte Shopping have also made drastic moves to restructure their businesses and integrate their online and offline businesses. Finally, we believe this merger will have a positive impact on GS Holdings, the controlling shareholder of the combined entity.</p>

It was announced after the market close on 10 November that GS Retail (007070 KS) will merge with Gs Home Shopping (028150 KS). GS Retail and GS Home Shopping have market caps of  2.6 trillion won (US$2.3 billion) and 0.9 trillion won (US$0.8 billion), respectively. GS Retail's main businesses include offline retail supermarkets (GS THE FRESH), CVS stores (GS 25), and logistics warehouses. GS Home Shopping's main businesses include home shopping and online e-commerce services. After the merger date, 4.2236834 common stock of GS Retail will be issued for 1 share of GS Home Shopping shares listed in GS Homeshopping's shareholder list. We believe that the merger between GS Retail and GS Home Shopping is a positive catalyst. Both companies have been negatively impacted by the barrage of heavy competition, especially among e-commerce driven companies such as Coupang, Naver, and Kurly in the past several years. The traditional brick and mortar competitors including Emart and Lotte Shopping have also made drastic moves to restructure their businesses and integrate their online and offline businesses. Finally, we believe this merger will have a positive impact on GS Holdings, the controlling shareholder of the combined entity.

Korea M&A Spotlight: A Merger Between GS Retail and GS Home Shopping

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