ANALYSIS Market Kurly CEO advised to increase stake to prevent hostile takeover
Financial investors can opt to sell their stakes for profits
By Kim Jae-heun
Market Kurly CEO Kim Seul-ah, also known as Sophie Kim, is facing calls to boost her stake in the grocery-delivery app in order to retain managerial control should a hostile takeover be attempted.
Kim currently holds a 6.67 percent stake in the company ― foreign investors from China, Hong Kong, Russia and the United States each hold bigger stakes than the CEO. They are financial investors whose top priority is achieving profits even by selling their stakes. This could happen before Kurly's initial public offering (IPO) here, possibly this or next year. Kurly owns Market Kurly.
Kurly is widely expected to go public as its corporate value has been increasing yearly. Investors have sought potential buyers to sell the retailer and retrieve the money they put into the company.
Last May, Kurly's corporate value was estimated at 900 billion won ($786.71 million) when it attracted 200 billion won ($174.8 million) in investments. Now, the value has increased by 2.6 times to 2.5 trillion won. Local investment banks predict the retailer's value to soar to 5 trillion after going public.
Kim's 6.67 percent stake as of the end of last year is expected to decrease after the retail firm attracted Series F investments in July from Aspex Management, DST Global, Sequoia Capital China and Hillhouse Capital.
Foreign investor ownership in Market Kurly stands at 58.2 percent ― and Chinese money accounts for 33 percent of the total. Local investors including SK Networks and Translink Investment own 3.68 percent and 2.96 percent, respectively. CJ Logistics recently took part in the Series F investment but did not invest a significant amount.
After the completion of Kurly's domestic IPO, industry watchers point out that the founder's position as CEO will be vulnerable.
Kim spoke publicly to alleviate such concerns, saying she will not sell Kurly. Her remarks, however, did not find many believers.
Possible overhang is another risk Kim has to address.
Financial investors could sell their shares to seek profits immediately after Kurly is listed. When a significant amount are sold at once, the company's stock price can fluctuate, leading to losses for Korean consumers.
The most pressing task for Kim is to seek a local strategic investor who will agree with Kurly's plan for mid- to long-term growth by securing a significant stake.
The Korea Exchange (KRX) is also requesting Kurly's major shareholders to exercise joint ownership of the company to restrict them from selling stocks individually. In that case, shares owned by major investors will be kept at the Korea Securities Depository and an individual party will have to ask for overall consent to sell their stake.
Kim had plans to list Kurly in the United States, impressed by the successful IPO of Coupang in March. She selected Goldman Sachs, Morgan Stanley and JP Morgan as partners to study the American market. However, the KRX convinced Kim to list her company in Korea by easing the rules for a local IPO, according to sources.
The top bourse operator revised the system to allow local “unicorns” to go public if their market capitalization exceeded 1 trillion won ― even if they were posting deficits or suffering from financial hardship.
Kurly's operating losses have been widening.
Last year, the online retailer suffered a deficit of 116.3 billion won even though sales totaled 953.1 billion won.
Undeterred by this, Kurly remains confident of its continued growth.
As of the end of May this year, the online retailer's membership surpassed 8 million.
“We have been working toward achieving economies of scale rather than striving to reduce deficits like Coupang. We are not in a position where the company is hungry for money. We attracted investments recently. By 2023 and 2024, we expect to swing into the black,” a Market Kurly official said.