Cha Partners: "Refine Tender Offer is a Conflict of Interest" [fn Market Watch]

[Financial News] A shareholder activist firm has directly targeted the board of directors regarding the potential violation of fiduciary duty in relation to the tender offer by controlling shareholder Realty Fine. It points out that the tender offer price of 17,600 won falls significantly short of the intrinsic value, and because the directors of the tender offeror and the target company overlap, the benefits of resolving the undervaluation are concentrated solely on the controlling shareholder.
According to the investment banking (IB) industry on the 4th, Cha Partners Asset Management sent a shareholder letter to Refine's board of directors, demanding that they immediately review and resolve to buy back and cancel treasury shares on the same scale as Realty Fine's tender offer. Cha Partners is a long-term investor that has held a stake through its managed collective investment scheme since first acquiring Refine shares in 2023. The background of this public demand is that the board failed to implement the share buyback proposals previously sent in letters in February and April of this year.
Realty Fine is conducting a tender offer to purchase up to 5,199,000 shares of Refine stock at 17,600 won per share, for a total of approximately 91.5 billion won. The purchase period runs until the 16th.
Cha Partners viewed this price as significantly below its intrinsic value, considering Refine's profitability and cash reserves. Refine's cash equivalents at the end of the first half of this year amounted to approximately 190 billion won, representing 66% of its market capitalization of about 290.5 billion won based on the closing price of 16,760 won on the 3rd. The tender offer price is about 35% lower than the 27,159 won per share paid by Realty Fine to acquire the existing majority shareholder's stake, and falls short of the initial public offering (IPO) price of 21,000 won at the time of listing.
The core issue is a conflict of interest. Realty Fine's CEO, Hyun Seung-yoon, and internal directors, Seong Ik-hwan and Jo Joo-young, are simultaneously non-executive directors of Refine. This effectively means that the three individuals constituting the majority of the tender offeror's board of directors also serve as directors of the target company.
Cha Partners pointed out, "There is insufficient evidence to verify whether the board of directors independently reviewed alternatives that were more equitable to all shareholders and increased value, or how conflicts of interest were managed, given that the same person held key decision-making positions on both the buyer and the target company."
The difference is clear when examining the flow of money. Assuming the same price and the same investment of 91.5 billion won, if the controlling shareholder makes a tender offer, there is no change in the company's assets or the number of outstanding shares. Only Realty Fine, having secured a larger number of undervalued shares, sees its economic benefits increase, while the intrinsic value per share for the remaining shareholders remains unchanged. Conversely, if the company acquires and retires its own shares under the same conditions, the value per share for all remaining shareholders increases in proportion to their ownership stake as the number of shares decreases at a price lower than their intrinsic value. Realty Fine also shares in this benefit.
Cha Partners countered that the justification for stabilizing management control can also be achieved through the cancellation of treasury shares. The calculation is that if Refine acquires and cancels 30% of the issued shares and Realty Fine does not subscribe, the controlling shareholder's stake would rise to approximately 68.5% without additional funds.
Stonebridge Capital and LS Securities, which invested in Refine through Realty Fine, are financial companies that have announced their commitment to responsible investment principles and the Korean Stewardship Code, respectively.

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