Doosan Bobcat and SK Square Targeted by Activism... Reasons Behind Their 'Divergent Stock Movements'

Active Engagement with Activist Funds and Shareholder Value Enhancement Boosts SK Square '↑'
Doosan Bobcat '↓' Amid Restructuring Including Loss-Making Doosan Robotics Subsidiary Acquisition

Ahead of next year's shareholders' meeting, activist funds are ramping up their activities. While activist funds can cause harm to shareholders and companies if they focus solely on short-term profits, they also have a positive aspect in that they raise proactive voices aimed at enhancing corporate value. Recently, attention has been drawn to the correlation between the actions of companies receiving various improvement demands from shareholder activist funds and their stock price fluctuations.

'Prime Companies' Targeted by Activist Funds... Reasons for Divergent Stock Price Movements?

According to the financial investment industry on the 28th, representative companies recently targeted by activist funds include Doosan Bobcat of the Doosan Group and SK Square, the holding company of SK Hynix.

Both companies are considered so-called 'prime companies,' but their stock prices had been undervalued. Doosan Bobcat is a company that manufactures small construction equipment in the United States and served as a cash cow for the Doosan Group, distributing dividends of 160.2 billion KRW last year. The Doosan Group decided to pursue a plan to reorganize its business structure by splitting Doosan Enerbility into an operating company and a newly established corporation holding shares of Doosan Bobcat, then merging this with Doosan Robotics to make Doosan Bobcat a subsidiary. They stated, "A comprehensive stock swap between Bobcat and Robotics will be difficult to pursue within the next year, but we will reconsider whether to proceed based on the opinions of shareholders and the market."

When the Doosan Group pushed ahead with the business restructuring by incorporating the prime affiliate Doosan Bobcat as a subsidiary of the loss-making Doosan Robotics, the stock market reacted immediately. In the four trading days following the press conference, Doosan Bobcat's stock price fell by 13.2%. Activist fund Align Partners Asset Management (Align), which holds more than 1% of Doosan Bobcat's shares, pressured the company by stating, "They must immediately announce the permanent abandonment of the comprehensive stock swap based on market value ratios." Lee Chang-hwan, CEO of Align, emphasized, "If they want to make Doosan Bobcat a wholly owned subsidiary of Doosan Robotics in the future, they should go through appropriate procedures to ensure fairness and opt for a public tender offer at a fair value equivalent to the M&A value that a third party is willing to pay." He added, "If the possibility of a comprehensive stock swap remains, all investors know that the lower Doosan Bobcat's stock price is, the more favorable the exchange ratio is for Doosan's controlling shareholders, which damages shareholder value."

SK Square, the intermediate holding company of the SK Group, has also recently become the target of the UK activist hedge fund Palisade Capital. SK Square is the largest shareholder of SK Hynix, which has a market capitalization exceeding 140 trillion KRW. Palisade has taken SK Square, with a market capitalization of just over 10 trillion KRW, as an easy target and is demanding various improvements from the SK Group to enhance corporate value. Palisade Capital is reportedly requesting SK Square to ▲increase the number of board members with asset management experience, ▲link executive compensation to company performance, and ▲raise the undervalued stock price (market capitalization) relative to asset value. Currently, SK Square's price-to-book ratio (PBR) is 0.74. A PBR below 1 means the market capitalization is lower than the company's book value.

An SK Square official said, "We are actively communicating with the fund and gaining many ideas," adding, "Rather than rejecting the fund's claims, we are taking this as an opportunity to increase corporate value and enhance shareholder value through existing portfolio value-up, new investments, non-core asset liquidation, and shareholder returns." Influenced by SK Hynix's earnings announcement and active exchanges with activist funds, SK Square's stock price is trending upward. After news broke on the 16th that Palisade had secured a 1% stake in SK Square, the stock price rose 12.35% over seven trading days until the 25th.