IHQ, Which Sold Cube Entertainment... "What Is the Next Move?"

[Asia Economy Reporter Hyunseok Yoo] IHQ has reportedly earned a profit exceeding 12 billion KRW by selling its affiliate Cube Entertainment. The company plans to secure its own IP (intellectual property) based on the sales proceeds and cash equivalents.

According to the financial investment industry on the 25th, IHQ sold all 8,134,200 shares (30.61%) of Cube Entertainment to VT GMP for 29.1 billion KRW. Cube Entertainment is known as the agency where artists such as Rain, 4Minute, Beast, and HyunA have been affiliated, and currently houses idol groups BTOB, Pentagon, and girl group (G)I-DLE. Cube Entertainment posted consolidated sales of 34.4 billion KRW and operating profit of 1.9 billion KRW in 2018. As of the third quarter of last year, it recorded cumulative sales of 22.4 billion KRW and operating profit of 496.1 million KRW on a consolidated basis.

According to the valuation report from the external appraisal institution of accounting firm Rian, the standard market price of Cube Entertainment is 3,919 KRW per share. This is the arithmetic average of the volume-weighted average closing price over the past month (3,770 KRW), the volume-weighted average closing price over the past week (3,967 KRW), and the most recent closing price (4,020 KRW). Rian applied a management premium rate, evaluating the per-share value between a minimum of 3,541 KRW (-9.65%) and a maximum of 5,205 KRW (32.81%). IHQ sold Cube Entertainment to VT GMP at 3,577 KRW per share, which is close to the minimum premium rate and 8.71% lower than the standard market price.

However, IHQ explained that it did not sell Cube Entertainment at a bargain price. The current share price is higher than at the time of the sale, making the per-share sale price appear low. The closing price of Cube Entertainment on October 31 last year was 2,645 KRW, and the sale process began in November last year. A company official said, "We started the sale process in November last year when the share price was low. The buyer and seller agreed on about 29 billion KRW, and since the share price has risen since then, it looks low from the current perspective."

The sale of Cube Entertainment brought a substantial gain to IHQ. The initial acquisition cost for Cube Entertainment was 16.5 billion KRW, resulting in a sales profit of 12.6 billion KRW. Especially, based on the abundant cash generated from the sale, the company plans to pursue IP acquisition in the future. Hanwha Investment & Securities predicted that IHQ’s total cash equivalents would exceed at least 80 billion KRW when including indicators such as the Cube Entertainment sale. Currently, IHQ produces the variety show "Delicious Guys" and the drama "Forest" entirely as 100% IP. A company official explained, "Although there are still sale-related issues remaining, so we cannot be aggressive immediately, we plan to invest in content and secure a lot of our own IP in the future."