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 that IMM PE, a domestic private equity fund manager and Hanssem’s largest shareholder, paid at the time of acquisition.

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 for the introduction of a mandatory tender offer system when selling management rights, in reality, it is highly likely to be set at the ‘50% plus one share’ level rather than 100%. Since a tender offer typically requires buying shares at a price significantly higher than the market price, IMM PE appears to have judged that increasing its stake by cancelling treasury shares in advance is the most efficient strategy. Furthermore, in the wake of the Homeplus incident involving MBK Partners, which has fueled negative perceptions of private equity funds, IMM PE, as a first-generation domestic fund, is also believed to be aiming to set a positive example.

Previously, in 2021, IMM PE acquired a 27.7% controlling stake in Hanssem for 1.4513 trillion won. Applying a management premium, IMM PE purchased the shares at twice the then-market price (221,000 won per share). Despite utilizing acquisition financing of 820 billion won, 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 carried out a 100 billion won tender offer in 2023 (at 55,000 won per share), raising its stake to 36%. At that time, Hanssem faced criticism for selling shares it had purchased at over 70,000 won per share back to the largest shareholder at a lower price.

However, there are still concerns that Hanssem’s business conditions remain difficult, and that even if a sale occurs, it will likely be at a significantly discounted price. Hanssem’s operating profit this year 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 first and second quarter figures were nearly halved compared to the same period last year. Sales have also continued to decline year-on-year. The ongoing slump in the construction market and the weakening of consumer sentiment are seen as reasons for the contraction in business conditions. Kim Sunmi, a researcher at Shinhan Investment Corp., explained, “Next year, both the number of move-ins and housing transactions are expected to decrease, while housing prices will rise, further reducing the capacity for remodeling and furniture consumption, which will delay the normalization of Hanssem’s performance.”