[Wealth Succession] Kona I① Chairman Jo Jeong-il's Family Company Acquisition Grown Through 'Work Concentration'

96% of Kona M's Sales Generated by Kona I
Kona M's Profit Margin Soars... Owner's Equity Value Increases

Jung Il Cho, CEO of Kona I.

Kona I will acquire a company called ‘Kona M,’ which is owned by Chairman Jo Jeong-il and his family. Ninety-six percent of this company's sales come from Kona I. By selling the company that grew thanks to Kona I back to Kona I, Chairman Jo and his family have managed to secure both control and cash.

According to the Financial Supervisory Service's electronic disclosure system on the 19th, Kona I announced that it will acquire 600,000 shares (85.7%) of Kona M for 38.3 billion KRW. After the acquisition, Kona I will add the 100,000 shares of Kona M it already owns, securing a total of 700,000 shares (100%). This means the affiliate will be incorporated as a subsidiary.

The acquisition price for Kona M is 63,848 KRW per share. The total corporate value was evaluated at 44.7 billion KRW. Previously, as of the end of last year, Kona I had recorded the book value of Kona M at 26,345 KRW per share. This means the acquisition price was assessed at more than 140% above the book value.

The sellers of Kona M shares are Chairman Jo Jeong-il of Kona I and 10 family members. Looking at the existing shareholding structure of Kona M, the largest shareholder is Chairman Jo Jeong-il (54.3%), and his daughter Director Jo Nam-hee, son Jo Jae-hyun, and seven others hold 31.4%.

Kona M was established in 2009 for the purpose of manufacturing electronic cards, and most of its sales come from Kona I. Kona I supplies physical cards produced by Kona M to banks, card companies, and other financial institutions.

Last year, Kona M recorded separate sales of 50.6 billion KRW and operating profit of 10.3 billion KRW. Of the total sales, 49 billion KRW came from Kona I, accounting for more than 96%. In 2021 and 2022, about 90-95% of total sales also came from Kona I.

Additionally, Kona I supported Kona M through joint guarantees. As of the end of last year, Kona I provided joint guarantees for about 4.5 billion KRW of Kona M's borrowings. If Kona M fails to repay, Kona I is responsible. The company stated, “The bank requested joint guarantees from Kona I, which is Kona M’s major customer, so Kona I provided the guarantee.”

Although Kona M’s business would be difficult to maintain without Kona I’s support, Kona M’s operating profit margin was significantly higher than Kona I’s last year. As of the end of last year, Kona M achieved an operating profit margin of 20%, while Kona I’s was around 12%.

However, before that, Kona I’s operating profit margin was higher than Kona M’s. In 2022, Kona M recorded 9%, while Kona I was in the 20% range. In 2021, Kona M had 4%, and Kona I was in the 25% range. The profit margin only reversed in the year immediately before the sale of Kona M. The increase in profit margin is an important factor when evaluating corporate value.

A Kona I official explained, “Kona I and Kona M are equal strategic partners who have collaborated on new product development and domestic and international customer acquisition. While Kona I’s operating profit margin declined last year due to investments in new businesses such as blockchain, taxi services, and intelligent metering infrastructure, Kona M achieved a high operating profit margin by increasing exports of metal cards with competitive costs through process improvements.”

He added, “From Chairman Jo Jeong-il’s perspective, mergers or external sales might be more advantageous than share purchases due to taxes and other reasons, but considering maintaining business capabilities and protecting Kona I’s minority shareholders, share purchases were judged to be the most effective.”

Meanwhile, Kona I plans to pay about 25 billion KRW of the acquisition price using 1,431,874 treasury shares it already holds. As a result, Chairman Jo Jeong-il and his family will increase their control over Kona I and secure cash simultaneously.