NXC, Nexon Holding Company, 30% Stake Fails in Public Auction

Ministry of Economy and Finance Holds KRW 4.7 Trillion
1st Auction Failed... 2nd Auction to Resume on 25-26th

The shares of the holding company NXC worth 4.7 trillion won, paid as inheritance tax by the family of the late Kim Jung-ju, founder of Nexon, were put up for public auction but failed to sell. Although acquiring the shares would instantly make the buyer the second-largest shareholder of NXC, the lack of management rights and voting rights is believed to have reduced the attractiveness of the offering.

According to the Korea Asset Management Corporation (KAMCO) online auction system (Onbid) on the 22nd, the first round of bidding for the NXC shares failed. The initial estimated price was 4.7149 trillion won. This is considered the largest amount of national tax paid in kind to date. Payment in kind is a procedure where inheritance tax is paid with securities or real estate instead of cash.

The shares put up for auction this time represent 29.3% (851,968 shares) of NXC, which the heirs inherited after the death of Kim Jung-ju, Nexon's founder, in February last year and paid to the Ministry of Economy and Finance as inheritance tax. With the inherited assets reaching around 10 trillion won, the family faced an inheritance tax burden of about 6 trillion won.

The government prioritizes selling the shares as a whole. This is because splitting the shares into smaller lots for sale would likely result in receiving less than their true value. Since no successful bidder emerged in the first auction, a second auction will be held on the 25th and 26th. Although prices typically drop after a failed auction, the minimum price will remain the same for the second round.

Initially, the market anticipated that selling NXC shares would not be easy. The heirs have a strong intention to maintain management control, making it difficult to exercise management rights. Even after the sale of shares, the family holds about 70% of the shares, including internal director Yoo Jung-hyun (34%), and two daughters Kim Jung-min (17.49%) and Kim Jung-yoon (17.49%), as well as Wise Kids (1.72%). These shares are non-voting. Since Nexon Korea, a subsidiary, and Nexon Japan, a grandchild company, are already listed domestically and in Japan respectively, recovering investment through NXC’s listing is also difficult.

Domestically, there appears to be little interest in acquiring NXC shares. The high price of around 5 trillion won without management rights is a major obstacle. Additionally, the current difficult domestic and international economic conditions are problematic. Potential buyers mentioned include Tencent, China’s largest gaming company, and the Public Investment Fund (PIF), Saudi Arabia’s sovereign wealth fund.

In the future, there is also a possibility that NXC and the heirs may acquire shares through a treasury stock purchase. If no valid bids are made in two or more rounds, the issuing company of the shares can dispose of them through a private contract. However, no matter how much the value of the shares paid as inheritance tax falls due to failed auctions, the government can only sell the shares at or above the initially assessed value. Since these shares were originally put up because it was difficult to bear the huge inheritance tax, reacquiring them is expected to be challenging.