[Public Companies at a Crossroads] IM Jeon’s Former Major Shareholder Sells CB First as Stock Price Rises Due to M&A③

[Asia Economy Reporter Jang Hyowon] It has been confirmed that the former largest shareholder of IM, a KOSDAQ-listed company, transferred IM’s convertible bonds (CB) before the transfer of management control shares was completed. As a result, IM’s stock price fluctuated during the merger and acquisition (M&A) process, creating an opaque governance situation.

Capture of the I AM homepage.

CB Sold Before Share Transfer... Stock Price Drops Due to Flood of Shares

On April 13, the former largest shareholder of IM, Park Se-cheol, CEO of Damul Multimedia and Wooriro, signed a contract to transfer 4,696,605 shares (8.0%) including management control shares to Lim Il-woo, CEO of Greenrees. The total amount was 14 billion KRW, approximately 2,981 KRW per share.

It was also reported that Lim’s side would acquire IM’s previously issued CBs worth 16.2 billion KRW. The existing CB holders included K-Com (9.5 billion KRW), Damul Multimedia (2.5 billion KRW), and individuals and investment companies who acquired through Sangsangin Securities (4.2 billion KRW).

The initial schedule for the management control share contract was for Lim’s side to pay 1.4 billion KRW on the contract day to Park, 2.8 billion KRW as an interim payment by May 12, and the remaining 9.8 billion KRW by May 25, three days before the extraordinary shareholders’ meeting. However, when May 25 arrived, the final payment date was postponed to June 15.

Although the final payment for the management control shares was delayed, IM’s CBs were sold on May 17. This means a large volume of CBs was released to the market before the management control shares were transferred. Moreover, except for the 2.5 billion KRW worth of CBs held by Damul Multimedia, the rest were traded.

These CBs were converted immediately after being sold. The converted shares amounted to 15,020,661 shares, a large volume equivalent to 35.6% of the existing circulating shares.

As a result, IM’s stock price fluctuated wildly. IM’s stock price, which had been below 1,000 KRW for over a year, surged past 2,400 KRW in April due to the management control sale issue. However, after the CB conversion request, the stock price plummeted to the 1,300 KRW range by June 2, the listing date of the converted shares.

Ultimately, all management control shares acquired by Lim were seized by lenders. Lim borrowed 6.8 billion KRW for the acquisition and provided all acquired shares as collateral. However, as the stock price fell, the collateral was executed on June 18, three days after the final payment deadline.

Only CB Investors Benefit... “Not a Normal Deal Structure”

Although IM’s governance became unclear and the stock price dropped, it is estimated that both the CB acquirers and sellers made profits.

The conversion price of the traded CBs was 928 KRW, but they were reportedly traded at about a 20% premium, around 1,100 KRW per share. Considering that the stock price briefly rose to the 1,900 KRW range after the CB conversion listing on June 2, it is expected that Lim’s side, which acquired the CBs, made a profit.

The sellers, including K-Com, also gained a 20% profit and an opportunity to dispose of the CBs. The CBs traded this time were issued in early 2019, but despite the conversion request date arriving last year, the stock price hovered near the conversion price, preventing disposal. The M&A issue then caused the stock price to rise, leading to the CB sale.

In particular, K-Com is presumed to be a paper company established with a capital of 10 million KRW solely for acquiring IM’s CBs. K-Com’s CEO is Kim Byung-seop, who is connected to Park Se-cheol and Cho Chang-bae, Vice President of Wooriro.

In the investment banking (IB) industry, it was said, “If CBs are released to the market before the transfer of management control shares financed by loans, the stock price falls, making it difficult to raise funds. From that perspective, this appears to be an unusual M&A structure.”

CB Held by Special-Related Party Damul Multimedia Sold Differently from Park Se-cheol’s Shares

Park Se-cheol’s side transferred only the portion of IM’s CBs held by Damul Multimedia to a corporation designated by Lim’s side on the 22nd, after all other deals were completed. This means the shares of a special-related party, which could be considered the same management control shares, were sold at different terms.

On the 22nd, Damul Multimedia sold 2.5 billion KRW worth of CBs to Corporation J for 3 billion KRW. The conversion price was 878 KRW, but the effective price per share was 1,054 KRW. This is about 65% lower than the management control share value of 2,981 KRW per share agreed upon by Park.

Damul Multimedia is a company controlled by Park Se-cheol. Park and Damul Multimedia are special-related parties. Typically, when signing a management control share transfer contract, shares held by special-related corporations are sold at the same price to avoid relative losses for those corporations.

Regarding this, a company official stated, “The management control shares of IM were acquired at a premium, around 2,500 KRW per share, and the CBs were issued at 878 KRW. Since Damul Multimedia also made a profit, there is no problem.”

This content was produced with the assistance of AI translation services.