Activist Fund FCP Submits Proposal to KT&G for 100% Acquisition of Insamgongsa

Proposed Acquisition Price of 1.9 Trillion Won
"Insamgongsa's Performance Decline, Need to Find a New Owner" Claim
No Obligation to Respond... Actual Sale Possibility Low

Singapore-based activist fund Flashlight Capital Partners (FCP) announced on the 14th that it has submitted a definitive letter of intent (LOI) to the KT&G board to acquire 100% of the shares of Korea Ginseng Corporation (Insamgongsa).

FCP proposed to acquire 100% of the shares of Insamgongsa held by KT&G for approximately 1.9 trillion KRW. This amount is 150% higher than the fair value of "EV/EBITDA 7-8 times," or 1.2 to 1.3 trillion KRW, presented by current KT&G CEO Bang Kyung-man at the 2023 Investor Day. EV/EBITDA is the ratio of enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA).

Lee Sang-hyun, CEO of FCP, emphasized that "all Korean citizens recognize the infinite potential of Insamgongsa," and stated that Korean ginseng could grow into a mega brand like New Zealand’s Manuka honey or China’s Maotai liquor. According to FCP, Insamgongsa’s performance has rapidly deteriorated. Operating profit fell by half from 202.1 billion KRW in 2019 to 103.1 billion KRW in 2023, and it is expected to decline further this year.

FCP argued that it is "nonsensical" for Insamgongsa to remain a 100% subsidiary under a tobacco company and has advocated since 2022 for Insamgongsa to be spun off and listed separately to grow into a global company. The KT&G board reportedly rejected this, citing a lack of "thorough review" even after several months. CEO Lee Sang-hyun stated, "Is it that they lack the ability to nurture it but are reluctant to give it away?" and insisted that Insamgongsa should find a new owner through a spin-off or sale.

Lee also mentioned that based on FCP’s confidence in Insamgongsa’s potential and understanding of the business, the deal could be closed in the shortest possible time. He warned that if the board only opposes, it would be admitting to merely acting as a rubber stamp for management.

Meanwhile, submitting acquisition proposals is a common practice in advanced capital markets such as the U.S. In Korea, KT&G’s board is not obligated to officially respond to FCP’s proposal, and the likelihood of an actual sale is considered low. In recent years, FCP has argued for the spin-off of Insamgongsa and has even brought shareholder proposals to the general meeting. FCP’s stake in KT&G is reported to be less than 1%.