[Exclusive] SNK Over-the-Counter Trade Approved... Finally Embraced by Saudi Crown Prince

FSS Completes OTC Transaction Approval... Smooth Progress in Major Shareholder Change

[Asia Economy Reporter Lee Seon-ae] The Financial Supervisory Service (FSS) has completed the approval for the over-the-counter (OTC) transaction of SNK, a game company listed on KOSDAQ. Accordingly, the acquisition of SNK by EGDC (Electronic Gaming Development Company), wholly owned by Saudi Crown Prince Mohammed bin Salman, is expected to proceed smoothly.

According to industry sources on the 19th, SNK confirmed through Kim & Chang and Kwangjang that there were no issues with the preconditions and applied for OTC transaction approval from the FSS last week, which was approved the day before. The FSS reviewed whether the OTC transaction was necessary due to unavoidable reasons and approved it as there were no problems.

On November 26 last year, SNK announced that CEO Gal Ji-hwi’s Hong Kong company Juikaku, which holds 100% ownership and is the largest shareholder, signed a stock purchase agreement to transfer 28.8% of SNK shares (6,065,798 shares) to EGDC. The total transfer amount was KRW 207.34572 billion (KRW 41,830 per share). The scheduled date for the largest shareholder change was January 12, 2021. On the same day, Perfect World, the second-largest shareholder from China, also agreed to sell its 4.5% stake (947,781 shares) to EGDC at KRW 34,183 per share. EGDC is 100% owned by the MiSK Foundation, established by Crown Prince bin Salman in 2011. This is the first time Saudi royal "oil money" has been invested in a domestic listed game company. As a result, investor interest surged, and after the news of the largest shareholder change, SNK’s stock price hit the upper limit for two consecutive trading days. On November 30, 2020, the stock closed at KRW 21,450, up 30.00% from the previous trading day.

However, on the 12th of last month, after market close, SNK announced that "EGDC decided to postpone the payment of the total transfer amount of KRW 207.3 billion, originally scheduled for that day, to March 17," raising suspicions about possible issues in the acquisition process. SNK explained that the contract schedule change was due to the fulfillment of preconditions for the main contract. Initially, EGDC was supposed to finalize the stock purchase agreement and make the payment by January 12, assuming all preconditions, including FSS approval for the OTC transaction, were met. Following the payment delay news, SNK’s stock price fell 27.76% on January 13, closing at KRW 20,950.

SNK chose OTC trading instead of on-market trading because the shares and sale proceeds needed to be exchanged simultaneously. In on-market block trades outside regular hours, settlement occurs on T+2 days, which is generally not preferred for M&A or management rights sales. However, OTC transactions incur a securities transaction tax of 0.5%, higher than on-market trades. Still, on-market block trades carry risks of contract failure between parties and have a price limit of ±30%, so SNK had no choice but to opt for OTC trading. The sale price per share for the largest shareholder’s stake (KRW 34,183) was 169% higher than SNK’s closing price on the stock purchase agreement announcement date (November 26 last year), which was KRW 12,700.

EGDC plans to acquire an additional 3,727,939 shares (17.7%) through a public tender offer if three months have passed since the stock purchase transaction closing date and other separately agreed preconditions are met.

Meanwhile, SNK is regarded as a representative company reflecting the rise and fall of the Japanese game industry. The original SNK, the predecessor of the current SNK, was established in 1973 and gained worldwide popularity by producing hit titles such as "The King of Fighters" and "Metal Slug." However, after the mid-1990s, as the gaming industry shifted from arcade machines to PC and console games with the spread of PCs, SNK declared bankruptcy in 2001. The current SNK is a company spun off by dividing the game IPs held by the former SNK, and Juikaku, the current largest shareholder, acquired it in 2015. SNK first attempted to list on the domestic stock market in 2017 and, after withdrawing once, succeeded in listing on the KOSDAQ market in May 2019.