IMM PE Takes Direct Approach... Hanssem to Cancel All Treasury Shares Worth 340 Billion Won

Preemptive Move Amid Push for Mandatory Treasury Share Cancellation
IMM PE Stake Surpasses 50%, Paving the Way for Faster Sale

Hanssem, the leading company in the domestic furniture and interior industry, has decided to cancel all of its treasury shares worth 340 billion won. This move is expected to boost its previously underperforming stock price and increase the stake of its largest shareholder, IMM Private Equity (PE), to over 50%, making a future sale of management rights easier.

According to the investment banking (IB) industry on December 23, Hanssem plans to cancel all 6,933,606 treasury shares, which account for a 29.46% stake in the company. The cancellation is expected to begin as early as the beginning of next year. Hanssem made this preemptive decision as the Democratic Party of Korea is accelerating efforts to mandate the cancellation of treasury shares. Among domestic listed companies with a market capitalization of more than 1 trillion won, Hanssem has the fourth highest treasury shareholding ratio, following Shinyoung Securities, SNT Dynamics, and Daewoong.

The cancellation of treasury shares is expected to improve earnings per share (EPS) and return on equity (ROE), which in turn should lead to a rebound in the stock price. Hanssem’s stock price has been on a steady decline amid the prolonged slump in the real estate market. The closing price on the previous day was 49,500 won, which is only one-fifth of the 221,000 won per share price when IMM PE, a domestic private equity fund operator and Hanssem’s largest shareholder, acquired the company.

Once all treasury shares are cancelled, IMM PE's stake will rise from 35.4% to 50.2%. With a majority stake secured, the sale of management rights is expected to become much easier in the future. Although the Democratic Party of Korea is pushing to introduce a mandatory tender offer system for management rights sales, it is highly likely that the threshold will be set at '50% plus one share' rather than 100%. Since a mandatory tender offer typically requires purchasing shares at a price significantly higher than the market price, IMM PE appears to have judged that increasing its stake through the cancellation of treasury shares in advance is the most efficient move. Furthermore, amid growing negative sentiment toward private equity funds due to the Homeplus incident involving MBK Partners, IMM PE, as a first-generation domestic fund, is also aiming to set a positive example.

Previously, in 2021, IMM PE acquired a 27.7% management stake in Hanssem for 1.4513 trillion won. The acquisition price was twice the prevailing stock price at the time, at 221,000 won per share, reflecting a management control premium. IMM PE also utilized 820 billion won in acquisition financing, but the stock price plummeted to the 40,000 won range immediately after the acquisition. As the loan-to-value (LTV) ratio soared, IMM PE negotiated with the acquisition financing syndicate and conducted a 100 billion won tender offer in 2023 at 55,000 won per share, raising its stake to 36%. At the time, Hanssem faced criticism for selling shares it had bought at over 70,000 won per share back to the largest shareholder at a lower price.

However, there are concerns that Hanssem’s business environment remains difficult, and even if a sale occurs, it will likely be at a significant discount. This year, Hanssem’s operating profit was only 6.4 billion won in the first quarter, 2.3 billion won in the second quarter, and 6.8 billion won in the third quarter. The results for the first and second quarters were half the level of the same period last year. Sales have also continued to decline year-on-year. The ongoing slump in the construction market and weakening consumer sentiment have caused the business environment to contract. Kim Sunmi, a researcher at Shinhan Investment Corp., explained, “Next year, both the number of new move-ins and housing transactions are expected to decrease, while housing prices will rise, reducing the capacity for remodeling and furniture consumption and delaying the normalization of Hanssem’s performance.”