Against The Merger
The Institutional Shareholder Services (ISS), the world’s biggest voting rights consulting company recommend investors to vote in revolt against SK Telecom’s acquisition of CJ Hello Vision.
According to the financial investment industry on February 25, ISS expressed its opinions, saying in its latest report that the merged entity’s board of directors (BOD) will be able to issue convertible bonds that exceed 20 percent of all issued stocks without an agreement from shareholders.
Agendas on the approval of the merger at the coming general shareholders meeting include a revision of an article of incorporation, which will elevate the total face value of stocks that can be issued just through a BOD resolution up to one trillion won after the merger from 400 billion won before the merger.
ISS expressed concerns that if the merged entity issues additional stocks in bulk, other shareholders’ equities will sharply sink, giving rise to stock dilution risks such as weakening their voting rights and slashing their dividends. In addition, ISS pointed out that shareholders’ appraisal rights are tawdry and not attractive. The stock price for them is 10,696 won, lower than 11,600 won, the stock price at the time of drawing up the report.
This means that shareholders will stand losses as they will have to sell their stocks at a price lower than the current price after the general shareholders meeting passes the agenda on the approval of the merger. ISS is a subsidiary of Morgan Stanley Capital International. The company offers guidelines for investors about making decisions by analyzing agendas at general shareholders meeting. Foreign investors refer to such guidelines when executing their voting rights.
This ISS report expressing concerns about damages to shareholders may serve as a factor in the final stage of the M&A process between SK Telecom and CJ Hello Vision.
According to the public disclosure system of the Korea Stock Exchange, Bearing Asset Management which owns 293,749 stocks of CJ Hello Vision announced on February 23 that it will execute its voting rights against the merger, citing the same reasons already pointed out by ISS.
The merger matter is that SK Telecom will take over CJ Hello Vision and CJ Hello Vision will absorb the SK Broadband, a subsidiary of SK Telecom. CJ Hello Vision is planning to put the merger matter to a vote in its general shareholders meeting to be held at nine in the morning of February 26.