[Public Companies at a Crossroads] Melpas, Why Did They Acquire a Company with No Earnings After Changing Ownership?

[Asia Economy Reporter Jang Hyowon] Premium bingsu brand ‘Miltop’ chose to acquire a wireless communication system semiconductor company as its first move after acquiring KOSDAQ-listed Melpas. The company plans to acquire existing shares by valuing this company at 40 billion KRW, but controversy is expected as the company had almost no sales until last year.

According to the financial investment industry on the 14th, Melpas announced on the 10th that it would acquire ‘GLS’. GLS is a system semiconductor company that produces 60GHz band ultra-high-speed wireless communication semiconductor chips and has developed proximity wireless communication standard chips such as ‘Zing2.0’.

Melpas is a company that manufactures touch screen modules based on touch sensing technology and is entering the ultra-high-speed wireless charging field as a new business. The strategy is to create synergy in this sector through the acquisition of GLS.

According to the company, Melpas plans to acquire about 51% of existing shares of GLS, valuing it at approximately 40 billion KRW. The current largest shareholder of GLS is CEO Song Gidong, who holds 45% of the shares. CEO Song is from the family of Kim Gisu, chairman of Mohenz, a KOSDAQ-listed company. Chairman Kim also holds shares in GLS. GLS’s headquarters are also located in the Mohenz building in Daejeon.

The market questions whether GLS can create value worth 40 billion KRW. GLS was founded in 2017 by CEO Song Gidong, who worked at the Korea Atomic Energy Research Institute for 29 years. As of last year, GLS recorded sales of 660 million KRW and a net profit of 56 million KRW.

Notably, 656 million KRW of last year’s sales came from other sales, which can be considered as service or temporary income. Actual sales from GLS’s main business, wireless communication semiconductors, were 4 million KRW, a 95.8% decrease from 95 million KRW in 2019.

Also, as of the end of last year, GLS’s total assets were 3.3 billion KRW, of which intangible assets accounted for 3.1 billion KRW. Among the intangible assets, 3 billion KRW is development costs. Development costs are items classified as intangible assets on the premise that expenses incurred from R&D can generate future profits.

General research expenses are recognized as costs, reducing operating profit in the current period, but when accounted as development costs, they become assets. This accounting treatment has been widely used in bio companies whose main work is research and development, but amid growing controversy over ‘rubber band accounting,’ financial authorities have strengthened asset recognition standards.

A Melpas official said, “We have exchanged opinions with GLS shareholders regarding the acquisition and plan to proceed with the main contract around mid-October. The exact acquisition price has not been determined as due diligence has not yet been conducted.”

Meanwhile, last month, Melpas’s largest shareholder changed to the premium bingsu specialty brand Miltop. As of the end of last year, Miltop recorded sales of 8.2 billion KRW and an operating loss of 500 million KRW, and is in a state of capital erosion.