Mandatory tender offer law falls short of TPG? Lotte Rental’s second-largest shareholder delivers a blunt challenge [fn Market Watch]

[Financial News] VIP Asset Management, the second-largest shareholder of Lotte Rental, will tender its entire stake into the tender offer by global private equity firm TPG. This would allow controlling and ordinary shareholders alike to recover their investment at the same price. However, VIP Asset Management took issue with the mandatory tender offer system being pursued by the National Assembly, saying it does not guarantee ordinary shareholders an opportunity to sell. Critics say that while a private acquirer has voluntarily moved to protect minority shareholders, the bill does not support that effort.
According to investment banking (IB) industry sources on the 12th, VIP Asset Management decided to tender its entire 7.33% stake in Lotte Rental into TPG’s offer. Last month, TPG acquired Lotte Group’s 61.17% stake in Lotte Rental for 59,000 won per share, or a total of 1.3105 trillion won. It will then launch a tender offer for the remaining 38.83% (14,097,325 shares) at the same price through the 3rd of next month. The total purchase amount is approximately 831.7 billion won.
This deal contrasts with the acquisition proposal from Affinity Equity Partners that fell through two years ago. At the time, Lotte Group had agreed to sell its stake for 77,115 won per share, but ordinary shareholders had no opportunity to sell at the same price. Instead, the deal structure included issuing new shares to the acquirer at a low price, sparking controversy over the dilution of existing shareholders’ stakes. VIP Asset Management publicly opposed the capital increase at the time.
The key issue, in particular, is the effectiveness of the mandatory tender offer system. According to VIP Asset Management, if the bill drawn up by the National Assembly’s National Policy Committee were applied to Lotte Rental, no additional purchase obligation toward ordinary shareholders would arise. That is because the acquirer’s initial purchase of the controlling shareholder’s stake would count toward the mandatory purchase threshold of “50%+1 share.”
TPG, however, has already acquired 61.17%, meeting the statutory threshold. In practice, it will voluntarily buy more than 14.09 million shares from ordinary shareholders, but the number of shares it would be required to buy under the bill is effectively “0.”
VIP Asset Management proposed a “pro rata tender offer” as an alternative. The mandatory purchase threshold would remain at 50%+1 share, but controlling and ordinary shareholders could tender their shares at the same price; if the number of shares tendered exceeded the planned purchase amount, they would be allocated pro rata. The aim is to guarantee an opportunity to share in the control premium without increasing the acquirer’s statutory minimum purchase amount.
VIP Asset Management CEO Kim Min-guk noted, “It’s the same company and the same shares, yet the opportunity for ordinary shareholders to sell has changed completely in just two years,” adding, “If an acquirer can meet the statutory threshold just by buying the controlling shareholder’s stake, there is a serious risk that even the market trend of offering ordinary shareholders the same price will be undermined.”
Some in the IB industry also see finding an institutional balance between protecting ordinary shareholders and the acquirer’s financial burden as key. That is because the scope of mandatory purchases and the allocation method could affect not only the control premium but also the size of acquisition financing and the likelihood of the deal closing.
An IB industry source said, “Ultimately, the Lotte Rental deal is an example of a private equity firm voluntarily giving ordinary shareholders the same opportunity to realize their investment as in a sale of control, and it has raised a new issue in the debate over the effectiveness of the mandatory tender offer system.” 
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