Activist fund in Korea explains its Osstem surrender

Industry

Published: 20 Feb. 2023, 16:13 Updated: 21 Feb. 2023, 18:08

Activist fund in Korea explains its Osstem surrender

Kang Sung-boo, CEO of KCGI, speaks during an interview with the JoongAng Ilbo on Jan. 30 in his office in Yeouido, western Seoul. [KIM SUNG-RYONG]

Wars for control of Korean companies are being fought with the help of activist investors seeking to profit from efforts to improve governance and exercise shareholder rights.

Companies targeted by the funds not only include SM Entertainment, which is in the midst of a dust-up involving Kakao, HYBE and the company's founder, but also Osstem Implant, Korea's largest dental implant company.

Behind the fierce battle is Kang Sung-boo, CEO of KCGI (Korea Corporate Governance Improvement), the first domestic activist fund to challenge a chaebol.

In 2018, KCGI pressured Hanjin KAL, a major shareholder in Korean Air Lines, to improve its corporate governance and change its management. Hanjin had been accused of poor corporate governance due to the strong influence of the Cho family.

Kang has set his sights on Osstem Implant after 221.5 billion won ($172 million) was embezzled from the company, the most ever from a listed Korean company.

KCGI became Osstem Implant’s third-largest shareholder, with 6.92 percent as of Jan. 27. In an open letter, the activist fund slammed Osstem, saying it is “undervalued due to an outdated governance structure,” and called for the resignation of Chairman Choi Kyoo-ok.

Following KCGI’s attack, Choi, the founder and top shareholder, with a 20.6 percent, sold 9.16 percent of the company to a consortium of MBK Partners, a Korean private equity firm that is favorable towards him, and Unison Capital Korea (UCK). Last month, the consortium announced a tender offer to buy up to 11.17 million shares of Osstem Implant at 190,000 won per share. The tender is open until Friday.

Choi will become the second-largest shareholder, yet still can exercise influence, such as having the right to nominate candidates for outside director posts and to vote.

Ultimately, Kang and KCGI accepted MBK and UCK’s tender offer on Feb. 10.

Kang sat down for an interview with the JoongAng Ilbo on Jan. 30 at his office in Yeouido, western Seoul.

Below are edited excerpts from the interview with Kang.

Q. Why did you accept the tender offer?

A. I thought about declining the offer and fighting — but it didn’t seem easy. It is rare for ordinary shareholders to win a case, and it seemed right to accept the tender offer to protect retail investors. If the MBK-UCK consortium becomes 100 percent shareholders of Osstem through a comprehensive share exchange, our investors may be at risk of delisting. If ordinary shareholders do not respond to the tender offer counting on us and if the company gets delisted, there is a possibility of investors losing money being bought out below the price offered in a tender offer.

Is there a possibility for Osstem Implant to be delisted?

MBK and UCK have never directly mentioned a delisting plan. However, the fact that a delist process is not difficult under the current law could be a risk to retail investors.

Has KCGI’s campaign to enhance the company’s corporate governance ended?

Despite its excellent business competitiveness, Osstem continued seeing owner-related scandals. This is why I argued that an establishment of an independent board of directors along with CEO Choi’s resignation could bring up the corporate value by up to five times the market capitalization of about 2 trillion won at the end of last year. It was meaningful that the campaign led to Choi's resignation from management, but it’s a bummer that he took only one step back and not two. I hope the consortium system itself could bring a positive influence. But if the consortium of the two funds becomes the largest shareholder, I’d like them to commit to not harming minor shareholders along with an improvement of corporate governance.

BY YEOM JI-HYEON [seo.jieun1@joongang.co.kr]