[Inside Chodong] Individual Investors Suffer Amid Management Control Disputes

Management Control Disputes Trigger High Volatility in Stocks Like Korea Zinc
Short-Term Speculation Leads to Potential Losses
SM's Stock Price Returns to Initial Levels One Year After Management Dispute

This year, significant management control disputes have been ongoing in the domestic stock market. Not only are family disputes following inheritance increasing, but conflicts among business partners vying for management control are also on the rise. When management control disputes arise, stock price volatility inevitably increases. Aggressive individual investors seeking high short-term returns rush to accumulate shares. However, in the end, not many individual investors make a profit.

Just looking at Korea Zinc, reminiscent of a "war of money," the stock price, which had hovered around 500,000 KRW, rose to about 800,000 KRW amid management control dispute issues. Both the side attempting to seize control and the defending side launched public tender offers, driving the stock price up. The largest shareholder of Korea Zinc, Youngpoong, and the private equity fund (PEF) operator MBK Partners proposed a tender offer price of 830,000 KRW. On the other hand, Choi Yoon-beom, chairman of Korea Zinc, who is trying to defend management control, is pursuing a self-stock purchase through a public tender offer. The price proposed by Chairman Choi's side is 890,000 KRW. Whether the high stock price will be maintained after the public tender offer period remains uncertain.

Looking at the stock price trend of FnGuide, a financial information provider, some predictions can be made. FnGuide's stock price rose 298% over 14 trading days from September 2 to 24. The stock price, which was below 10,000 KRW at the end of August, climbed to 38,450 KRW. Its market capitalization swelled from 110 billion KRW to 440 billion KRW. During the same period, it had the second-highest increase among companies listed on the KOSDAQ market.

Hwacheon Group, a financial investor (FI) and the largest shareholder of FnGuide, directly recommended director candidates to exercise management control, and former CEO Kim Gun-ho's side also independently proposed director candidates. Hwacheon Group holds a 41.08% stake in FnGuide, while former CEO Kim Gun-ho's side secured 23.05%. A vote battle over the appointment of directors recommended by both sides is expected at the extraordinary shareholders' meeting scheduled for the 31st.

Separately from the competition to secure friendly shares, the stock price has plunged 65% from its peak. Although more than two weeks remain until the extraordinary shareholders' meeting, the shareholder registry with voting rights was finalized on the 7th. This means that even if additional shares are purchased, voting rights cannot be exercised at the extraordinary shareholders' meeting. As investors looking to buy new shares disappear, the stock price continues to decline daily.

The stock prices of most listed companies embroiled in management control disputes showed a similar pattern to FnGuide. Stock prices surged sharply immediately after the management control dispute surfaced and returned to their original levels after some resolution. SM, which stirred the stock market during last year's shareholders' meeting season, was no different. A dispute over management control occurred between former general producer Lee Soo-man and Kakao, and the stock price surpassed 160,000 KRW on March 8 last year. Within a year, the stock price fell to 70,000 KRW. Kakao, which won the management control dispute, is experiencing a reality different from the rosy future it had anticipated.

Even looking at T'way Air, where a management control dispute possibility between the largest and second-largest shareholders has been raised, high volatility can be confirmed. Individual investors who bought shares expecting a short-term surge have not made profits. This month, individuals purchased 10 billion KRW worth of T'way Air shares but are currently facing an unrealized loss rate of 13%. Daemyung Sono Group emerged as a strong second-largest shareholder, putting pressure on the largest shareholder, T'way Holdings, causing the stock price to briefly rise to 3,990 KRW during trading on the 10th. The stock price then plunged to 3,165 KRW within two days.

While stock prices can surge due to management control disputes, predicting stock prices is difficult. The intrinsic value of a company does not change just because major shareholders fight over management control. Rather, it is common for outsiders to suffer in the "whale fight."