Chairman Choi Yun-beom's Side Raises Youngpoong Precision Tender Offer Again... Where Are the Investors Headed?

Price is higher on Chairman Choi's side but may not sell all volume
Minimum expected value is actually higher on MBK's side
Must also consider risk of sharp stock price drop after tender offer ends

Choi Yoon-beom, chairman of Korea Zinc, has raised the tender offer price for Youngpoong Precision, considered the 'core' of the management rights dispute, once again. Youngpoong Precision holds a 1.85% stake in Korea Zinc. The tender offer price has surpassed that of the MBK Partners-Youngpoong alliance, which declared it would not raise the offer price further. However, unlike Chairman Choi’s side, which plans to purchase only part of the remaining shares, the MBK alliance intends to buy all remaining shares, resulting in a higher expected return on tender offer for MBK, drawing attention to investors’ responses.

According to the Korea Exchange’s disclosure system on the 11th, Chairman Choi’s side raised the counter tender offer price for Youngpoong Precision from 30,000 won to 35,000 won. The planned purchase quantity remains the same at 25% (3,937,500 shares). The period is until the 21st. This price is higher than MBK’s tender offer price of 30,000 won. MBK officially announced, "We will not raise the tender offer price for Korea Zinc and Youngpoong Precision any further."

Lower downside but higher peak for Chairman Choi’s side

At first glance, it seems advantageous for investors to sell shares to Chairman Choi’s side, which offers a higher price. However, it is necessary to consider that the maximum tender offer target quantity is only a portion of the circulating shares. Looking at Youngpoong Precision’s shareholding structure, excluding the Jang family (21.25%) and the Choi family (35.45%), the remaining shares amount to 43.3%. Chairman Choi’s maximum tender offer quantity corresponds to about 57.5% of the remaining shares. If an investor responds fully to Chairman Choi’s tender offer, 42.5% of their shares cannot be sold due to the “pro rata allocation” principle. Pro rata allocation means that if the submitted shares exceed the target quantity in a tender offer, the buyer purchases each shareholder’s submitted shares proportionally.

In this case, if an investor holds 1,000 shares and responds to Chairman Choi’s tender offer, the expected value ranges from a minimum of 24.36 million won to a maximum of 35 million won. The minimum value assumes that after the management rights dispute ends, the weighted arithmetic average stock price for the three months prior to the tender offer announcement (9,952 won) will be the reference price. Selling 57.5% of the shares at 35,000 won and the remainder at 9,952 won results in 24.36 million won. Of course, if the tender offer application quantity is less than 57.5% of the remaining shares, the investor can sell all shares through the tender offer and receive up to 35 million won.

MBK side guarantees higher downside protection

On the other hand, responding to MBK’s tender offer guarantees stable downside protection. This is because MBK plans to purchase all remaining shares through the tender offer. Calculated similarly for 1,000 shares held, an investor can reliably receive 30 million won. Since the expected returns depend on how much investors participate in each side’s tender offer, a fierce game of strategy is expected until the tender offer closes. MBK’s tender offer period ends on the 14th, while Chairman Choi’s ends on the 21st.

The risk is considerably high if shares cannot be sold through the tender offer. During last year’s SM management rights dispute, SM’s stock price plunged 23.5% in one day after the tender offer ended. At that time, the tender offer price proposed by Kakao was 150,000 won, but the stock price dropped 55% to 67,400 won as of the 10th. Recently, the Financial Supervisory Service issued a consumer alert, stating, "There have been cases where stock prices of related companies fell sharply during or after the tender offer period, so investors need to be cautious when investing."