Smak Considers Borrowing as Capital Increase Shrinks... Expects Synergy After Acquisition

Funding Plan for Acquisition of Wia’s Machine Tool Division
New Share Issue Price Finalized... Fundraising Scale Reduced from 53.9 Billion Won to 43.5 Billion Won
Shortfall to Be Covered by Available Cash and Borrowing

Smak has reduced the scale of its planned capital increase, which was intended to raise funds for the acquisition of Wia's machine tool division. The issue price for the new shares has decreased due to a drop in the share price since the board of directors initially resolved to proceed with the capital increase. As Smak's available cash alone is insufficient, the company has decided to secure acquisition funds through borrowing as well.

According to the Financial Supervisory Service's electronic disclosure system on June 23, Smak will issue 28 million new shares to raise 43.5 billion won. The issue price for the new shares has been set at 1,553 won. Previously, on April 2, Smak's board of directors resolved to carry out the capital increase, with a planned issue price of 1,924 won and a target amount of 53.9 billion won.

Earlier, a consortium of Smak and Rilson Private Equity (PE) signed a stock purchase agreement (SPA) to acquire Hyundai Wia's machine tool business unit for 340 billion won. Rilson PE and Smak will contribute 221.7 billion won and 118.3 billion won, respectively, securing 65.2% and 34.8% stakes. Upon completion of the acquisition of Hyundai Wia's machine tool business unit, the board of directors will consist of five members. According to the shareholding structure, Rilson PE will nominate three directors and Smak will nominate two.

Smak has established a funding plan that combines 43.5 billion won from the capital increase, a 20 billion won deposit, 19.8 billion won in available cash, and 35 billion won in acquisition financing, totaling 83.3 billion won. While Smak initially expected to raise 60 billion won through the capital increase, the decline in the share price led to a lower issue price and a reduced amount raised. Smak plans to utilize liquid assets, including 15.9 billion won in cash and cash equivalents, an 1.8 billion won credit line, 1.1 billion won in letters of credit (L/C) to be purchased, 2.2 billion won in notes maturing and available for discount in May, and 500 million won in other financial assets excluding amounts pledged as collateral.

The company stated that it plans to borrow funds through a domestic first-tier bank and explained that the risk of failing to secure external borrowing is low.

If there are unsubscribed shares after the allocation to existing shareholders and the general public offering, Korea Investment & Securities, the underwriter, will purchase the remaining shares. In this case, Smak will pay an additional fee equal to 15.0% of the amount underwritten by Korea Investment & Securities. Depending on the subscription results for the capital increase, the amount Smak needs to borrow may change.

The reason Smak is determined to proceed with the acquisition, even considering borrowing, is the expectation of significant business synergy after acquiring Hyundai Wia's machine tool division. While DN Solutions has established itself as the dominant player in the domestic machine tool market, Smak expects to establish itself as the second major player. The company believes that the independence and autonomy between Smak and Hyundai Wia's machine tool division will be maintained, while cooperation will generate various synergies.