Netmarble takeover of Coway 'win-win game'

Woongjin Coway headquarters in Jung-gu, Seoul. / Courtesy of Woongjin Coway

By Nam Hyun-woo

Netmarble Chairman Bang Joon-hyuk.

Netmarble's “unexpected” purchase of a major stake in water purifier rental firm Woongjin Coway will create win-win opportunities for both companies because the mobile game maker can diversify its portfolio by lessening its reliance on the increasingly competitive game industry, analysts said Monday.

Coway will be able to improve its financial soundness and secure much-needed investment to expand its presence at home and abroad, thanks to its new cash-rich majority stakeholder.

While raising some questions on short-term synergy between the two businesses, however, the analysts stressed the deal would create mid- to long-term synergy in Netmarble's move into the emerging “subscription economy,” and secure it a stable cash flow.

According to Netmarble, it was selected as the preferred bidder to purchase a controlling 25.08 percent stake in Woongjin Coway for 1.83 trillion won ($ 1.8 billion).

Following the deal, Woongjin Coway will be separated from Woongjin Group, which bought the stake in March, but put it up for sale just three months later.

During a conference call, Netmarble Vice President Seo Jang-won said the firm made the bid “to operate a subscription business as part of securing a new growth engine for the firm,” adding that he was positive about M&As with other promising businesses.

Analysts agreed the deal was desirable for Coway, which has been the target of M&As for several years, despite its solid profitability.

“Netmarble has nearly 2 trillion won in cash and is capable of financing nearly 5 trillion won, which is an abundant fundamental for Coway,” said IBK Securities analyst Ahn Ji-young. “When the two companies are integrated after the deal, concerns for aggressive restructuring of Coway's workforce and business will be limited, because the two companies have no overlapping business domain and have no redundancy in their workforce.”

KB Securities analyst Park Shin-ay said Coway's decoupling from Woongjin Group was also a boost for the rental firm, because the group's huge leverage had been a pressure for Coway.

“Uncertainties over an M&A have been hanging over Coway for the past four years and that has eased with the deal,” Park said. “Also, the company's share price had been swayed by news and rumors of M&A deals, rather than its profitability.”

For Netmarble, analysts said the deal will provide a stable cash flow.

“The deal is positive for Netmarble because it is an assertive way of using its cash reserves,” said NH Investment & Securities analyst Ahn Jae-min. “It is also positive because Coway's rental business provides a stable cash flow for Netmarble, which is a game firm depending largely on the popularity of certain titles.”

However, Ahn added that it was hard to think of a synergy between the game and rental business.

“The game industry's main customer targets are male players in their 20s to 40s, and this is separate from Coway's main target for the smart home rental business,” Ahn said.

KB Securities' Park also said Netmarble's bid was aimed at a “stable contribution to earnings” rather than synergy between the companies.