"Even More Money Couldn't Make Them Sell"—The Tender-Offer Formula GABIA Broke [fn Market Watch]

[Financial News]  Tender offers, which had been gaining traction in South Korea's capital markets as a means of acquiring corporate control, have hit a snag at GABIA. The development confirmed that a tender offer itself can fail if major shareholders do not participate, even when a premium is added to the market price.
The transaction has drawn particular attention from the investment banking (IB) industry because the failed tender offer not only hindered efforts to secure a stake but also scuttled the acquisition of the largest shareholder's stake. In deals that combine tender offers with M&A transactions for corporate control, the interests and ownership structure of major shareholders have emerged as key variables alongside price.
According to the investment banking (IB) industry on the 25th, 721,413 shares were tendered in the offer for GABIA conducted by DCK Investment (DCK), a special-purpose company (SPC) affiliated with Macquarie Asset Management (MAM). That represented just 22.1% of the minimum 3,267,629 shares DCK planned to purchase. Although DCK offered 48,000 won per share, it failed to meet the minimum tender requirement and did not purchase a single tendered share.
What stands out is that the choices of existing shareholders, rather than the tender-offer price, proved decisive. Miri Capital and Align Partners Capital Management, major shareholders of GABIA, did not participate in the tender offer, preventing DCK from meeting the minimum purchase condition set by MAM. 
The failed tender offer ultimately spilled over into the entire control transaction. The share purchase agreement (SPA) under which DCK had agreed to acquire a 24.37% stake in GABIA from co-CEO Kim Hong-guk, Vice President Jeon Jeong-wan, and co-CEO Won Jong-hong for approximately 157 billion won was also terminated. The transaction, structured at up to 627.6 billion won, effectively stopped at the tender-offer hurdle.
The IB industry believes the GABIA case leaves significant challenges for the M&A transactions involving tender offers that have recently become more widespread. It has become difficult to guarantee a deal's success based solely on the conventional assumption that shareholders will participate when a certain premium is added to the tender-offer price.
The situation is particularly different for companies in which major shareholders, such as activist funds or institutional investors, have secured meaningful stakes. Each shareholder's calculations may vary based not only on the tender-offer price but also on the company's future value, potential changes in corporate governance, and prospects for shareholder returns.
"An offer premium alone does not always guarantee that a sufficient number of shares can be secured," an IB industry source said. "For companies where major shareholders hold sizable stakes, there is a growing need to reflect their decision-making in the transaction structure," the source added.
"The GABIA deal reminded the market once again that a tender offer is both a means of completing an M&A transaction for corporate control and a key condition that can determine the outcome of the deal," the source said. "In future M&A transactions combined with tender offers, the extent to which major shareholders can be brought into the transaction, no less than price competitiveness, is expected to determine success or failure," the source added. 


[email protected] Kim Kyung-a Reporter