Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Naver looms as potential target of activist funds
Naver headquarters in Seongnam, Gyeonggi Province / Korea Times file
By Park Jae-hyuk
Falling stock price, founder's small stake, bribery scandal weigh on IT giant
By Park Jae-hyuk
Naver, which saw a sharp decline in its stock price over the past year, is viewed as the next target of activist hedge funds, amid intensifying shareholder activism on the Korean stock market, according to securities analysts, Monday.
After reaching a record high of 465,000 won ($357) in July 2021, Naver's stock price went into a tailspin throughout 2022 and stood at around 200,000 won over the past few months, disappointing the IT giant's investors.
In addition, Naver was recently involved in a bribery scandal. Prosecutors suspect the company illegally donated 4 billion won in 2015 to Seongnam FC, a professional football club owned by the city, to ask then-Mayor Lee Jae-myung, the main opposition Democratic Party of Korea's incumbent chairman, to grant permission for the construction of a new headquarters building in the city.
Considering the fact that Naver founder Lee Hae-jin holds only a small number of the company's shares, industry officials expect that activist funds may target the Korean tech firm in order to make short-term profits by boosting its stock price.
Naver founder Lee Hae-jin speaks during a National Assembly audit in Seoul in this October 2022 file photo. Korea Times photo by Oh Dae-keun
Earlier this month, KB Securities picked Naver as one of the listed companies that could face growing pressure to increase shareholder returns, saying that those listed companies could be exposed to activist campaigns.
“After witnessing the improvements in stock prices of the companies that accepted requests from activist shareholders, expectation is growing throughout the market,” KB Securities analyst Kim Jun-seob said.
His remarks hinted that activist hedge funds will gain the support of Naver's minority shareholders, ― who collectively hold around a 70 percent stake ― if they urge the company to increase its shareholder returns.
As of February, Naver's largest shareholder was the National Pension Service, which holds over an 8 percent stake. The Naver founder only owns a 3.74 percent stake in the company.
Last October, the state pension fund changed the purpose of its stake ownership from “simple investing” to “general investing,” indicating its intention to interfere with Naver's management, as it did recently toward multiple listed companies, including KT.
Other major shareholders of Naver include foreign investors, such as BlackRock with 5.78 percent, Artisan Partners with 2.67 percent and Vanguard with 2.61 percent.
Among the foreign shareholders, Artisan is known as the U.S. activist fund that asked Samsung Electronics in 2016 to pursue shareholder-friendly management. The investment fund also urged Switzerland's Richemont and France's Danone to improve their respective business performances.
“Foreign investors tend to be more sensitive to a bribery scandal,” a capital market insider said.
There is a chance that shareholders will point out Naver's cross-ownership of other companies' stocks.
Cross ownership refers to a publicly-traded corporation owning stakes in another publicly-traded company. The practice may protect the company, whose stocks are partially owned by another company, from a potential hostile takeover. But there is also the possibility of a domino effect in case of an economic downturn.
APG, a Dutch pension fund, said earlier this year that it will question Naver's cross shareholding, after pointing out the practice at KT.
Naver declined to comment on the possibility that it could be the next target of activist funds.