[At a Crossroads: Listed Companies] Starco Link ① Corporate Mergers and Acquisitions Cited as Causes for 'Disclaimer of Opinion' in Listed Companies

Acquisition of Company with 1.1 Billion Net Assets for 11.4 Billion Won
Sales Expected to Soar...Company Cites "Order Backlog" as Basis

StarcoLink, a KOSDAQ-listed company, is merging with the ship materials company ‘Starco.’ Starco is the company cited as the reason for the audit opinion refusal received by listed company A. Additionally, there are concerns that the acquisition price of 11.4 billion KRW is overvalued, given that Starco’s net assets are around 1.1 billion KRW.

According to the Financial Supervisory Service’s electronic disclosure system on the 23rd, StarcoLink announced that it will absorb and merge Starco, in which it holds 100% of the shares. Earlier, on the 14th, StarcoLink acquired 100% of Starco’s shares for a total of 11.4 billion KRW. The purpose of the acquisition is to secure business synergy for entering new business areas.

Of the acquisition amount, 6 billion KRW was paid in cash, and 5.4 billion KRW was settled through the issuance of convertible bonds (CB). The entity that sold 51% of Starco’s shares in exchange for 6 billion KRW in cash is a corporation called ‘Yukon Partners.’

The sellers of the remaining 49% of shares, settled through CBs, are Yukon Partners and listed company A. StarcoLink newly issued the 7th series convertible bonds and distributed 3.245 billion KRW and 2.145 billion KRW worth of bonds to Yukon Partners and company A, respectively. However, since company A also acquired Starco shares from Yukon Partners in June, effectively, the entire sale proceeds flowed to Yukon Partners.

Company A received an audit opinion refusal from its audit firm after acquiring Starco shares in June. It is presumed that there were issues related to the Starco stock transaction. The auditor of company A stated that they could not secure evidence to review the fair value evaluation of company A’s other corporate stocks and could not determine the economic substance, leading to the refusal of the opinion.

Starco, established in 1992, is a company engaged in the manufacture of ship and construction materials. Its main products include fireproof walls, fireproof ceiling materials, fireproof doors, prefabricated bathrooms, and cabins used in general ships and cruise passenger ships.

Starco entered corporate rehabilitation in July 2018, and a rehabilitation plan involving Shinwha Enterprise as the sole shareholder was approved by the court in January 2019, concluding the rehabilitation process in April 2019. According to Shinwha Enterprise’s 2020 audit report, Starco’s book value was zero. Shinwha Enterprise held Starco until the end of 2022. Last year, it transferred Starco to a company called ‘Star Holdings,’ and earlier this year, Yukon Partners acquired all of Starco’s shares.

As of the end of June, Starco’s net assets stood at 1.1 billion KRW. Total assets were 17.6 billion KRW, and total liabilities were 16.5 billion KRW. Until the end of 2022, it was in a state of complete capital erosion, but it replenished capital by selling tangible assets last year. However, current liabilities (13.6 billion KRW) still exceed current assets (10.8 billion KRW), indicating a need for liquidity.

The basis for valuing Starco at 11.4 billion KRW is the optimistic future earnings outlook. The company expects Starco to achieve sales of 21.1 billion KRW and operating profit of 3.6 billion KRW in the second half of this year. It anticipates continuous growth, with sales surpassing 71.4 billion KRW by 2029.

Last year, Starco recorded sales of 16 billion KRW and pre-tax operating profit of 79 million KRW. In the first half of this year, it posted sales of 7.8 billion KRW and pre-tax operating profit of 51 million KRW. The projection assumes rapid growth starting from the second half of this year compared to past performance.

A StarcoLink official stated, “We have signed long-term supply contracts with major domestic ship manufacturers and estimated sales by reflecting confirmed and ongoing contracts. Specific contract amounts are internal information and cannot be disclosed.”

Meanwhile, StarcoLink’s predecessor was Longtu Korea, a company engaged in domestic and international mobile game publishing. It recorded cumulative consolidated sales of 1.9 billion KRW and an operating loss of 3 billion KRW in the first half of this year.