Nexon, NCSOFT in dispute over management

By Yoon Sung-won

NCSOFT’s share prices closed sharply down Thursday, correcting the previous day’s steep gains on speculation that it will be a target of hostile takeover by Nexon.

NCSOFT closed down 4.15 percent at 208,000 won, following a 14.81 percent gain the previous day. Nexon GT, Nexon’s online game development affiliate, also suffered a steep correction. It ended down 7.32 percent at 15,200 won, after a 14.69 percent gain the previous day.

Founded by its chairman Kim Jung-ju in Korea, Nexon is currently headquartered and listed in Japan.

The stock prices fluctuated after the news that Nexon will participate in NCSOFT’s management based on its status as the largest shareholder with 15.08 percent. Nexon is followed by NCSOFT CEO Kim Taek-jin with 9.9 percent share and the National Pension Service’s 7.8 percent.

Nexon acquired 14.7 percent of NCSOFT shares in 2012 and added 0.4 percent in October last year.

The Fair Trade Commission approved the combination of the nations’ two largest game companies in December as Nexon came to own more than 15 percent of NCSOFT shares.

The two denied allegations over a possible hostile takeover at that time, saying that “the stock purchasing was simply for investment.”

The fair trade watchdog said in December that it may reexamine its previous decision if Nexon acquires more NCSOFT shares or causes a change in NCSOFT’s management.

“We are observing how things change because there is no change in NCSOFT’s executive team so far,” an official at the commission said.

NCSOFT’s next annual shareholders’ meeting is scheduled in March. Its CEO Kim Taek-jin’s term also expires by then. Nexon may exert influence to replace the NCSOFT CEO if it seeks to have control over the company.

Analysts say the key point is whether Nexon will purchase extra shares of NCSOFT to take control of the company while Kim, the second-largest shareholder, tries to secure the management right by gaining more stocks.

“Nexon’s decision has already triggered disagreement between the two companies and may cause competition in securing NCSOFT shares in the future,” said NH Investment and Securities analyst Jeong Jae-woo. “This, of course, is a positive issue for the stock price.”

They said Nexon’s participation may also help NCSOFT to expand revenue by reducing operational costs and by tapping into Nexon’s existing global distribution channels.

Nexon said in a statement that the current cooperation structure between the two companies failed to have meaningful results due to its limits in quickly responding to rising competition in the industry. NCSOFT, on the other hand, expressed regret over Nexon’s decision and said it has backed down on its own promise, breaking its trust on the market.

Another analyst in a local security firm said, “NCSOFT may suffer from losing talented game developers because the two companies have different business philosophies, which is an essential part of the game industry. Consequently this may cause serious delays in service-launching schedules in the future.”

An industry source said, “NCSOFT has been called a developers’ heaven has it puts a great deal of emphasis in game development and developers compared to other companies. Nexon’s presence may influence NCSOFT developers.”

Meanwhile, the two companies denied the allegation that NCSOFT’s recent personnel appointment affected Nexon’s decision.

On Sunday, NCSOFT promoted its former Vice President Yoon Song-yee to president of NC West Holdings, NC’s affiliate in the United States. The allegation was that promotion of Yoon, who is wife of the NCSOFT CEO, triggered Nexon to make the decision because it was done without the knowledge of the largest shareholder.

“It was an inside promotion announced as a part of regular personnel appointment. The allegation is groundless speculation,” said Yun Jin-won, NCSOFT’s head of global communication division.

Nexon’s corporate PR department manager Choi Hyun-woo also said that the allegation was not true.