More hostile M&As likely on Korea's path to becoming advanced country in finance: report

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Korean firms are anticipated to face more attempts for hostile mergers and acquisitions (M&As) as the nation strives to become an advanced country in the finance sector, according to a report released Thursday.

The report was released by NH Investment & Securities in the midst of Korea Zinc’s intensified battle for management control against the coalition of private equity fund MBK Partners and the smelter's largest shareholder, Young Poong.

This kind of business feud, according to the brokerage arm of NH Financial Group, has been “constantly increasing in Korea since 2019” as the financial market faces growing demand to enhance shareholder rights, such as larger dividend payouts.

For instance, Korea had less than 20 attempts for management takeovers made by activist funds in 2019.

But the number surpassed 20 in 2021, 40 in 2022 and 60 in 2023.

The advocate movement for shareholders has gained ground in line with environmental, social and corporate governance principles and the government's Corporate Value-up Program, which calls for company management's enhanced responsibilities.

“The market efforts to strengthen shareholder rights and toughen management’s responsibility can be accompanied (through) disputes between the controlling shareholder and more minor shareholders of a company,” NH Investment & Securities said.

“Under the circumstances, the involved parties may attempt to gain management control of a company through a hostile M&A.”

The brokerage house assessed that, while attempts at management takeovers have become more frequent throughout Asia, Korean businesses are especially vulnerable to such attempts as they lack “tools for management defense.”

“The targeted companies can buy up their own shares for defense, but that measure is costly and therefore can (only) be carried out by those with a lot of cash,” NH Investment & Securities said.

NH Investment & Securities went on to say that management takeovers may occur among companies where the difference in ratio of stakes is “subtle” between the largest shareholder and the second-largest.

These companies are also noted for undervaluation despite having abundant liquidity and competence in their respective industries.

According to market observers, the companies that are likely to be targeted for hostile M&A attempts are KIS Wire, a carbon steel wire supplier, as well as Sajo Daerim, a seafood processing firm, and Sindoh, a printer manufacturer.

“They have a common ground as undervalued blue chip stocks,” an industry source said.

Among the companies which have a narrow gap between leading shareholders were NCSOFT, Kumho Petrochemical, Hyundai E&C and T’way Air.