'Individuals Sell, Institutions Buy'... Increased Likelihood of Lutronik's Tender Offer Success

Amid the ongoing tender offer for the acquisition of management rights of Lutronik by domestic private equity fund (PEF) Hahn & Company, a large trading volume equivalent to about 63% of the total outstanding shares occurred during the first three days of the tender offer. In particular, institutions and foreigners showed a pattern of large-scale purchases.

According to the Korea Exchange and the investment banking (IB) industry on the 14th, Lutronik's stock price over the past three days remained slightly below the tender offer price of 36,700 KRW. As of the closing price on the 13th, it was 36,250 KRW.

There are three conditions for the success of the tender offer: maintaining a stock price slightly below the tender offer price, sales by individual investors and purchases by institutional investors and foreigners, and a large trading volume in the early stages of the tender offer.

When a tender offer begins, the stock price usually surges immediately to a level close to the tender offer price, allowing individual shareholders to realize profits through on-market sales. At this time, the selling volume from individual shareholders is typically purchased by arbitrage investors such as institutions and foreigners aiming for a profit margin of around 1% through tender offer subscription participation.

Regarding trading volume, it is generally highest on the first day of the tender offer announcement and gradually decreases. Therefore, the higher the trading volume during the first three days of the tender offer, the higher the likelihood that such arbitrage trading has occurred significantly, increasing the chances of tender offer success.

Lutronik's trading volume recorded 12,851,164 shares over three days following the tender offer announcement. This corresponds to about 63% of the 20,531,071 outstanding shares excluding the largest shareholder's stake, representing a high level.

The trading patterns by investor type are also notable. Individual shareholders showed a selling trend close to 9 million shares, while institutional investors and foreigners purchased approximately 7 million and 3.34 million shares respectively during the same period. The stock price was maintained slightly below the tender offer price of 36,700 KRW, ranging from a low of 36,000 KRW to a high of 36,300 KRW, allowing arbitrage investors to realize a profit margin of around 1%.

A source from the financial investment industry said, "Since a large trading volume occurred early in the tender offer, it can be estimated that the likelihood of tender offer success has increased," adding, "Quick-acting individual shareholders seem to have been satisfied with the stock price, which included a premium of about 30-40% compared to one to three months before the tender offer, and sold on the market."

The biggest reason individual shareholders show a pattern of large-scale sales in the market without participating in the tender offer is taxation. Selling on the market at a price close to the tender offer price only requires payment of transaction tax and fees, but participating in the tender offer is considered an over-the-counter transaction, subjecting gains to a 22% capital gains tax. With Lutronik's stock price moving between 36,000 KRW and 36,300 KRW over three days and reaching the highest price in the past five years, it is analyzed that most shareholders were able to realize profits at this price level.

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