JoongAng Ilbo acquisition for 520 billion won: Dow and CJ to jointly manage; Hong Seok-hyun side’s stake to fall to the 4% range [fn Market Watch]

[Financial News] Dow Kiwoom Group and CJ Group will invest 520 billion won in JoongAng Ilbo and begin joint management. The two sides, which were locked in a last-minute tussle over securing management control, found common ground by agreeing to balance their stakes. The deal is structured around a large issuance of new shares without a capital reduction for existing shareholders. As a result, the stake held by Chairman Hong Seok-hyun’s side is expected to be diluted from the 80% range to the 4% range. However, the possibility that Dow Technology’s financial burden could increase as a result of raising acquisition funds warrants attention.
According to investment banking (IB) industry sources on the 4th, Dow Technology, Saramin, CJ Group and Shinsegae each held board meetings that day and approved signing a conditional share subscription agreement (SSA) for the acquisition of JoongAng Ilbo. The agreement is scheduled to be signed on the 5th, with a total of 520 billion won to be invested through a third-party allotment paid-in capital increase.
The contribution ratios are 36.5% for Dow Technology, 13.7% for Saramin, 35.7% for CJ Group and 14.1% for Shinsegae. The Dow Kiwoom side will contribute about 261 billion won, while the CJ Group-Shinsegae side will contribute about 259 billion won. Although the Dow Kiwoom side’s contribution is about 2 billion won higher, the two sides are expected to jointly manage the company on the basis of balanced stakes. Shinsegae will participate as a financial investor (FI).
Dow Kiwoom and CJ Group initially tussled over control of JoongAng Ilbo. The signing of the agreement, which had been scheduled for the 30th of last month, was also reportedly postponed over disagreements about the shareholding ratios and the JoongAng Ilbo masthead. In the end, the two sides agreed to joint management instead of one side securing control.
A feature of the deal is a restructuring of the governance structure without a capital reduction. The consortium is reportedly set to subscribe to 104 million new shares at par value of 5,000 won per share. That is about 15.7 times the 6,609,600 shares already issued. The plan is to issue a large number of new shares without canceling existing shares, lowering Central Holdings’ and Chairman Hong Seok-hyun’s side’s stakes from the 80% range to the 4% range.
With the two sides reportedly set to secure stakes of about 47.27% each, the remaining voting rights of existing shareholders are also drawing attention. Measures such as restricting voting rights are being discussed as safeguards to prevent Chairman Hong’s side from exercising a casting vote under the joint management structure.
The acquirers’ financial burden is also drawing attention. Korea Investors Service (KIS) previously estimated that if Dow Technology borrowed the entire 250 billion won in acquisition funds, its standalone net debt would rise from 100.7 billion won to 350.7 billion won. It also projected that the net debt-to-EBITDA ratio would increase from 1.1 times to 3.9 times.
Dow Technology’s announced planned contribution is about 189.8 billion won, and its financial burden could vary depending on how the funds are actually raised. KIS said that while the construction investment in the Jukjeon cloud data center (CDC) and the JoongAng Ilbo acquisition could coincide and increase the debt burden, it considered the burden manageable given the company’s stable earnings structure and other factors.
The UK-based activist fund Asset Value Investors (AVI) also reportedly sent Dow Technology a letter opposing the acquisition, raising questions about its investment returns.
Meanwhile, all 520 billion won in proceeds from the capital increase will flow to JoongAng Ilbo and is to be used to repay debt and improve its financial structure. JoongAng Ilbo disclosed that an event of default (EOD) had occurred on corporate bonds worth 137 billion won in June. It had previously proposed extending the maturity to the end of 2029, but with a large influx of funds now expected, attention is focused on how the repayment will actually be handled.
JoongAng Ilbo is preparing for follow-up procedures, including a financial creditors’ council meeting on the 6th and a bondholders’ meeting on the 17th. Since entering a workout in July, JoongAng Ilbo has pursued a sale led by its lead creditor bank, Hana Bank, and is aiming to close the deal and graduate from the workout by the end of the year.
[email protected] Kim Hyun-jung Reporter