Continuous M&A: A Remedy or a Risk for the Market?

Emart Acquires Stake in Starbucks Korea
Netmarble Acquires SpinX
Emart and SM Strong, Game Stocks Weak... Mixed Impact on Stock Prices

[Asia Economy Reporter Song Hwajeong] Are mergers and acquisitions (M&A) between companies a cure or a poison? Market reactions to recently announced large-scale M&As are mixed.

As of 9:20 a.m. on the 4th, Emart was trading at 174,000 KRW, up 1,000 KRW (0.58%) from the previous day, showing a strong trend for the third consecutive day. Except for one day last week, it showed strength every day, and the upward trend has continued this week.

This strength in Emart’s stock began after the announcement of an additional acquisition of shares in Starbucks Coffee Korea. On the 27th of last month, Emart disclosed that it decided to acquire an additional 17.5% stake in Starbucks Coffee Korea to secure stable management rights. After the acquisition, the shareholding ratio will be 67.5%.

The market expected performance improvement effects from Emart’s additional share acquisition. Shin-ae Park, a researcher at KB Securities, analyzed, "Starbucks Coffee Korea is expected to be included as a consolidated subsidiary from the fourth quarter, and the impact on Emart’s consolidated income statement is a 10% increase in sales, 50% increase in operating profit, and 7% increase in net profit." Starbucks Coffee Korea recorded sales of 1.9284 trillion KRW and operating profit of 164.4 billion KRW last year, currently operating about 1,500 stores. Over the past five years, the average annual growth rates of sales and operating profit were 20% and 28%, respectively. Some speculate about the possibility of Starbucks Coffee Korea going public.

Netmarble, which acquired mobile social casino game company SpinX, showed a weak trend over the past three days. On the 2nd, Netmarble announced that it decided to acquire 100% of SpinX’s shares for 2.19 billion USD (approximately 2.5 trillion KRW). Securities firms evaluated the SpinX acquisition positively. Jaemin Ahn, a researcher at NH Investment & Securities, said, "Netmarble’s acquisition of SpinX is positive in terms of expanding influence in the social casino market, diversifying the game portfolio, securing stable cash flow, and increasing the global sales ratio." However, reality was different. Due to negative news about Chinese game stocks, the stock closed lower the day after the announcement.

SM showed a strong rise of over 3% amid rumors of the largest shareholder selling shares. This marks the third consecutive day of gains. Its subsidiary, SM C&C, recorded a daily limit-up price the previous day and surged more than 15% again on this day. News of Kakao Entertainment, HYBE, CJ, and others participating in the acquisition battle related to the sale of shares by Lee Soo-man, the largest shareholder and general producer, led to the stock price increase.

On the other hand, Hugel’s stock price weakened as major companies withdrew. Hugel reached a 52-week high of 279,500 KRW intraday on the 21st of last month but closed at 236,400 KRW the previous day, down more than 15% from the high. The stock price rose sharply as Shinsegae and Samsung C&T were known to be participating, but the decision by all of them not to proceed with the acquisition affected the stock price.