NXC Corp. has again delayed the tender scheduled for this week for the sale of its controlling stakes in its affiliates, including Nexon Co., Korea’s largest gaming company. Some watchers say that the deal itself may be cancelled. This is because the sale price is as high as 15 trillion won (US$12.63 billion) and many think that it is too expensive considering the company’s growth potential.
Deutsche Bank and Morgan Stanley, the leading managers of the sale, informed the shortlisted potential buyers on May 14 of postponement of the bidding scheduled on May 15 to May 24. The delay was reportedly requested by one of the potential buyers who has failed to secure a letter of commitment (LOC) from the financial companies that promised to finance the deal. The leading managers of the sale could not lose any of the potential buyers as they have to make the bidding a success and drive up the sale price as much as possible.
On the face of it, a particular potential buyer’s lack of preparation is the main reason for the postponement. However, industry watchers are taking note of the repeated delays. Nexon already put off the bidding from the middle of last month to the middle of this month, saying it needed more preparation time. Industry insiders say the repeated delays hints that both the seller and buyers are not satisfied with the terms of the sale. It is ultimately the sale price that matters. So, some think that the deal itself can be cancelled.
Nexon founder Kim Jung-ju put up for sale a 98.64 percent stake in NXC Corp., the holding company of Nexon, held by himself and his wife. NXC has 10 subsidiaries, including Nexon Co. listed on the Tokyo stock exchange. The key company is Nexon Co. which is worth 1.40 trillion yen (US$12.76 billion or 15.16 trillion won) in terms of market cap. The market price of a 28.3 percent stake in Nexon Co. held by NXC Corp. and an 18.7 percent stake held by an investment unit in Belgium alone reaches 7 trillion won (US$5.89 billion). When including a control premium, the total price of the deal is estimated at 15 trillion won (US$12.63 billion).
Many market watchers feel that the price is too high. Since Nexon has no clear cash cows other than “Dungeon and Fighter,” they say the price of 15 trillion won (US$12.63 billion) could be burdensome for potential buyers. They say that some potential buyers failed to secure a LOC from their financial investors because of the high price.
Five potential buyers include private equity funds MBK Partners, Kohlberg Kravis Roberts (KKR) and Bain Capital as well as consortiums formed by Kakao and Tencent, the strategic investors which participated in the preliminary bidding process in March. These potential buyers contacted businesses and investment funds at home and abroad, such as Netmarble and Electronic Arts (EA), to discuss forming a consortium. The leading managers sent a letter of invitation to a number of foreign leading firms, including Disney.
Since there are a large number of candidates, the bidding process is highly unlikely to end with no bids. However, it is still unclear how many companies will actually participate in the bidding process. An industry insider said, “NXC may be able to select a preferred bidder on May 24. But it does not mean that it can sign the final contract with the preferred bidder.”