JAYJUN Cosmetic Acquires Management Rights Through Full Debt Financing in M&A

[Asia Economy Reporter Jang Hyowon] Amber Capital Korea borrowed 27 billion KRW (the entire loan amount) from IOK Company, an affiliate of Ssangbangwool Group, to acquire Jayjun Cosmetic. Amber Capital, with a total capital of only 54 million KRW, is evaluated to have effectively conducted a no-capital acquisition by borrowing funds secured by the shares of the acquired company to purchase it.

According to the Financial Supervisory Service's electronic disclosure on the 27th, Amber Capital acquired 10,766,176 shares (13.99%) of Jayjun Cosmetic from the former largest shareholder, Edo Healthcare, through an over-the-counter purchase on the 25th, becoming the largest shareholder. The stock transfer amount was 27 billion KRW. The price per share was 2,556 KRW, which is 163% higher than the current stock price.

Amber Capital borrowed all the funds for the stock acquisition from IOK Company. It provided all shares of Jayjun Cosmetic as collateral. If the collateral rights are exercised, IOK will become the largest shareholder of Jayjun Cosmetic. IOK is a company engaged in the entertainment business, with actors such as Go Hyun-jung and Jo In-sung affiliated. The largest shareholders are Dimoa (formerly Infinity NT) and Mirae Industry, both affiliates of Ssangbangwool.

The largest shareholder of Amber Capital is Chairman Yoo Jun-min, who holds 100% of the shares. Initially, it was established by Gil Kyung-jin, who was an inside director of the KOSDAQ-listed company NSN, and Yoo Tae-sung, former vice president of NSN, served as CEO. Later, Yoo and others resigned as of the 22nd, and the current CEO is Yang Jae-won, who is the vice president of IOK.

Amber Capital was established on June 16 last year with a capital of 500 million KRW. Its business purposes include investment advisory and stock trading, but its main business is management consulting. Previously, it attempted to acquire ES Cube but transferred the contract to CEO Lee Jong-chul of JC Partners, and LIS, which acquired management rights, has applied for court receivership to adjust its main debts.

The market is paying attention to how Amber Capital will repay the acquisition funds and interest to IOK in the future. The interest rate on the stock collateral loan between Amber Capital and IOK reaches 10%, meaning 2.7 billion KRW must be paid annually as interest.

To raise such funds, dividends must be received from Jayjun Cosmetic, but since Jayjun Cosmetic has been posting large deficits every year, the possibility of dividends is currently low.

Jayjun Cosmetic recorded sales of 40.8 billion KRW and an operating loss of 45 billion KRW in 2019 on a separate basis, followed by sales of 26 billion KRW and an operating loss of 11.2 billion KRW in 2020, and last year sales of 14.6 billion KRW with an operating loss of 14.1 billion KRW. As of the end of the first quarter this year, the accumulated deficit reached 104.4 billion KRW.

Regarding this, Yoo Jun-min, chairman of Amber Capital Korea, stated, “We are currently registering a management participation private equity fund (PEF), and if the PEF is established within two months, we plan to convert the IOK loan into equity capital,” adding, “Jayjun Cosmetic will focus on the cosmetics business while spinning off its subsidiary RF Tech to secure cash.”