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

<ul>
<li>Kakao and Kakao Entertainment each plan to purchase 4.167 million shares at ₩150,000 per share, totaling 8.33 million. This is a 14.5% premium to the last close.</li>
<li>The tendering ending date is March 26th, Sunday, so the actual ending date is March 24th. Since Korea adopts the T+2 settlement system, stocks must be purchased by the 22nd.</li>
<li>The price of SM may decline towards below the tender price relatively quickly as a large number of retail investors will likely bet on the prolonged proxy battle.</li>
</ul>


Kakao and Kakao Entertainment each plan to purchase 4.167 million shares at ₩150,000 per share, totaling 8.33 million. This is a 14.5% premium to the last close.
The tendering ending date is March 26th, Sunday, so the actual ending date is March 24th. Since Korea adopts the T+2 settlement system, stocks must be purchased by the 22nd.
The price of SM may decline towards below the tender price relatively quickly as a large number of retail investors will likely bet on the prolonged proxy battle.


Kakao's Tender Offer to SM Ent Shareholders: Key Details of Disclosure Filed This Morning

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<ul>
<li>On 3 March, it was announced that a Korean court has ruled against SM Entertainment from issuing new shares and CB to Kakao Corp (035720 KS).</li>
<li>HYBE's tender offer period ended on 1 March. It is highly unlikely for HYBE to have successfully completed the tender offer reaching the entire 25% of outstanding shares.</li>
<li>We maintain our position of a high probability of Kakao initiating its own tender offer of SM Entertainment shares in the coming weeks at about 140,000/150,000 won or more.</li>
</ul>


On 3 March, it was announced that a Korean court has ruled against SM Entertainment from issuing new shares and CB to Kakao Corp (035720 KS).
HYBE's tender offer period ended on 1 March. It is highly unlikely for HYBE to have successfully completed the tender offer reaching the entire 25% of outstanding shares.
We maintain our position of a high probability of Kakao initiating its own tender offer of SM Entertainment shares in the coming weeks at about 140,000/150,000 won or more.


Korean Court Rules Against SM Entertainment From Issuing New Shares to Kakao

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>In a move to counter Lee Soo-man's influence, <a href="https://www.smartkarma.com/entities/s-m-entertainment-co" target="_blank" data-smartkarma-citation="entities:3500:1" rel="noopener">S.M.Entertainment Co (041510 KS)</a> intends to issue new shares (9.05% on a fully diluted basis) to <a href="https://www.smartkarma.com/entities/kakao-corp" target="_blank" data-smartkarma-citation="entities:15002:1" rel="noopener">Kakao Corp (035720 KS)</a>.</li>
<li>Lee, with 18.4% in SM, responded by selling 14.8% to SM's rival <a href="https://www.smartkarma.com/entities/hybe-co-ltd" target="_blank" data-smartkarma-citation="entities:28959:1" rel="noopener">HYBE (352820 KS)</a>. HYBE concurrently announced a tender offer for an additional 25%, at ₩120,000/share, a 22% premium.</li>
<li>Kakao and SM are less than impressed. But these developments are a power grab for the pioneer of K-pop.</li>
</ul>


In a move to counter Lee Soo-man's influence, S.M.Entertainment Co (041510 KS) intends to issue new shares (9.05% on a fully diluted basis) to Kakao Corp (035720 KS).
Lee, with 18.4% in SM, responded by selling 14.8% to SM's rival HYBE (352820 KS). HYBE concurrently announced a tender offer for an additional 25%, at ₩120,000/share, a 22% premium.
Kakao and SM are less than impressed. But these developments are a power grab for the pioneer of K-pop.


K-Pop Battle: HYBE's Tender Offer For S.M. Entertainment:

<ul>
<li>We believe that there is a very high probability of a successful tender offer of 25% stake in SM Entertainment by HYBE. </li>
<li>There is a 4.6% gap between the tender offer price and current price. There is a strong probability of this gap being closed in the next several weeks. </li>
<li>There could also be an on-going interest by Kakao to try to take over the controlling interest in SM Entertainment but HYBE is not likely to give up control easily.</li>
</ul>


We believe that there is a very high probability of a successful tender offer of 25% stake in SM Entertainment by HYBE. 
There is a 4.6% gap between the tender offer price and current price. There is a strong probability of this gap being closed in the next several weeks. 
There could also be an on-going interest by Kakao to try to take over the controlling interest in SM Entertainment but HYBE is not likely to give up control easily.


HYBE's Tender Offer of SM Entertainment: Closing the Price Gap

<ul>
<li>There is no cancellation risk, regardless of where and how the ongoing proxy battle will be heading and unfolding. But there is a pro rata allocation risk, though.</li>
<li>Regarding tax, a tender event in Korea is treated as an over-the-counter trade. So transfer income tax is imposed.</li>
<li>SM provides shorting instruments necessary for arb trade, and the possibility of an arb opening coming out during tendering isn't completely dead, given the uncertainties surrounding the current proxy battle.</li>
</ul>


There is no cancellation risk, regardless of where and how the ongoing proxy battle will be heading and unfolding. But there is a pro rata allocation risk, though.
Regarding tax, a tender event in Korea is treated as an over-the-counter trade. So transfer income tax is imposed.
SM provides shorting instruments necessary for arb trade, and the possibility of an arb opening coming out during tendering isn't completely dead, given the uncertainties surrounding the current proxy battle.


Critical Details of Regulatory Filing for the SM Ent Tender Event

South Korea

HYBE Co., Ltd. operates as an entertainment company. The Company provides music production, album distribution, entertainers management, publicity, planning, training, and other services. HYBE also makes television shows.

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HYBE (352820 KS)

Kakao's Tender Offer to SM Ent Shareholders: Key Details of Disclosure Filed This Morning

This post details Kakao's latest tender offer to SM Entertainment shareholders at a 15% premium to the last close and discusses trading angles that...

Sanghyun Park

Korean Court Rules Against SM Entertainment From Issuing New Shares to Kakao

On 3 March, it was announced that a Korean court has ruled against SM Entertainment from issuing new shares and CB to Kakao Corp (035720 KS).

Douglas Kim

K-Pop Battle: HYBE's Tender Offer For S.M. Entertainment:

Trading tight at a 2.3% gross spread to terms. HYBE may bid higher. So could Kakao. Either buy here to play the partial tender offer; or for...

David Blennerhassett

HYBE's Tender Offer of SM Entertainment: Closing the Price Gap

There is a 4.6% gap between the tender offer price and current price of SM Entertainment. There is a strong probability of this gap being closed in...

Douglas Kim

Critical Details of Regulatory Filing for the SM Ent Tender Event

This post offers critical details of the regulatory filing about HYBE's tender offer to the shareholders of SM Entertainment.

Sanghyun Park

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