Brief Korea: Amorepacific Stub: Interesting Situation Amid Pref Issuance and more

In this briefing:

  1. Amorepacific Stub: Interesting Situation Amid Pref Issuance
  2. Amorepacific Group Plans to Buy 200 Billion Worth of Amorepacific Corp & The Long-Short Trade

1. Amorepacific Stub: Interesting Situation Amid Pref Issuance

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Holdings/Sub are now at a +2.5σ on a 20D MA. Holdings discount relative to Sub (price ratio) is currently at a 120D high. Holdings announced a ₩200 pref issuance last night. Not only that, Holdings said that it would use the proceeds to buy Sub shares openly in the market. This will surely be enough to reverse the ongoing price diversion favoring Holdings. It’s time for another arb here: short Holdings and long Sub. Liquidity on both names shouldn’t be much of an issue here.

2. Amorepacific Group Plans to Buy 200 Billion Worth of Amorepacific Corp & The Long-Short Trade

Seominjung

Amorepacific Group (002790 KS) announced today after market close that it plans to purchase 1.33 million shares of Amorepacific Corp (090430 KS), which is worth 200 billion won or about 2.3% of Amorepacific Corp common shares outstanding. Amorepacific Group plans to conduct a rights offering to raise funds for this purchase. Amorepacific Group also plans to invest in the Osulloc tea brand business, which has been one of the Amorepacific affiliates.  

Long-short Trade – This announcement is likely to put a strong positive pressure on the Amorepacific Corp shares and a negative pressure on the Amorepacific Group shares in the next few weeks. Most likely, the potential arb on this deal is likely to be settled in the first few minutes of trading on the morning of October 11th. You would want to be long Amorepacific Corp and short on Amorepacific Group shares on this arb trade.

We believe that one of the reasons why Amorepacific Group is issuing convertible preferred shares is because this could be one of the methods that Chairman Seo Kyung-Bae may use to increase the ownership of Amorepacific Group to his children. Chairman Seo has two daughters including Seo Min-Jung (age 26) and Seo Ho-Jung (age 22). The elder daughter Seo Min-Jung started working at Amorepacific Corp in 2017. It appears that the elder daughter Seo Min-Jung is being groomed to eventually take on key senior management positions at Amorepacific although this is likely to take many more years. 

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