Delisting Following Tender Offers... Focus on 'Comprehensive Stock Swap'

Even if the acquirer secures a stake below the voluntary delisting requirement,
100% ownership can be obtained through a comprehensive stock exchange under the Commercial Act

As delistings of listed companies through tender offers continue, the 'comprehensive stock exchange procedure' under corporate law for delisting is gaining attention. This is because even if the tender offeror secures a stake lower than the voluntary delisting requirement, they can acquire 100% ownership through a comprehensive stock exchange under the Commercial Act.

The comprehensive stock exchange of shares (Article 360-2 of the Commercial Act) is a method where the shareholders of a company becoming a wholly owned subsidiary exchange their shares for shares of the wholly owning parent company. At this time, a cash payment type of comprehensive stock exchange is also possible, where cash is paid instead of delivering shares of the wholly owning parent company.

If the parent company holds two-thirds or more of the subsidiary's shares, it can be done by a special resolution of the shareholders' meeting, and if the parent company's shareholding ratio is 90% or more, a simplified stock exchange can be carried out by a board resolution without a shareholders' meeting.

In fact, the private equity fund (PEF) manager Hahn & Company completed delisting of the KOSDAQ-listed company Lutronik last year through a cash payment type comprehensive stock exchange following a tender offer procedure. This year, after a tender offer for Ssangyong C&E, they resolved a cash payment type stock exchange as of April 23.

There are also well-known cases such as SKE&S delisting Busan Urban Gas through a cash payment type stock exchange after a tender offer in 2021, and Hanwha Galleria delisting Hanwha Galleria Timeworld in the same manner in 2020.

In the case of Lutronik, Hahn & Company secured a 90.17% stake based on common shares through two tender offers before resolving the stock exchange, and the stock exchange resolution for Busan Urban Gas was made while the parent company SK E&S held an 84.34% stake, and for Hanwha Galleria Timeworld, the parent company's stake was 69.45% at the time.

MBK Partners, currently conducting a tender offer for Connect Wave, is also expected to secure more than 70% of the total potential issued shares following the announcement on May 3 by Kim Gi-rok, the former chairman of the board and second largest shareholder, to participate in the tender offer, making a comprehensive stock exchange under the Commercial Act possible.

When a comprehensive stock exchange proceeds after the tender offer ends, the consideration is likely to be the same price as the tender offer price. The per-share payment in a comprehensive stock exchange is calculated based on the traded stock price, which tends to be similar to the tender offer price during the tender offer period.

A financial investment industry official said, "There are still many cases where incorrect information is spread in some stock discussion rooms or open chat rooms, such as that collecting more than 5% of shares can prevent delisting or that higher prices can be received later," adding, "In cases where the comprehensive stock exchange procedure is possible, delisting is highly likely regardless of the tender offer participation rate, so individual shareholders should verify this point."