Unusual tender offer announcement fuels share volatility as regulator warns retail investors of potential losses
A Japanese investment group's surprise plan to acquire up to half of JYP Entertainment has raised doubts over its financial capacity and credibility, prompting South Korea's financial watchdog to scrutinize the announcement amid concerns over potential investor losses.
The Financial Supervisory Service said Wednesday it was closely monitoring The Nexroc Group and SVCV for possible unfair trading following an unusual tender offer announcement that sent JYP shares sharply higher.
"We are closely monitoring the situation to protect retail investors from potential losses," an FSS official said.
The two parties announced Monday that they planned to launch a tender offer as early as November for 25 to 50 percent of JYP's outstanding shares, potentially at a 30 percent premium to a reference share price. They have yet to finalize the offer price or pricing method, while JYP said it had received no acquisition proposal.
JYP shares surged 14 percent in after-hours trading Monday, gained more than 6 percent Tuesday and fluctuated by more than 4 percent during Wednesday's session.
Industry officials questioned the proposal's credibility, citing limited information about the prospective buyers and their funding.
Tender offers are typically announced shortly before trading begins on the launch date. Disclosing plans in advance can drive up the target company's share price, increasing acquisition costs and potentially exposing investors to market volatility.
"The identity of the investment firm behind the acquisition plan is unclear," an investment banking industry official said. "If a company announces an acquisition without the financial resources or genuine intention to complete it, and the announcement affects the share price, regulators need to investigate."
The Nexroc group's press release also lacked key information required in a formal tender offer statement, including the final offer price, funding arrangements and settlement terms.
Under Korean regulations, tender offer filings must disclose the bidder's identity, the purpose and terms of the offer, the number and type of shares sought, the offer period and financing details.
Questions have also emerged over whether the group can finance an acquisition of JYP, whose market capitalization exceeds 1 trillion won ($750 million).
According to the US Securities and Exchange Commission's EDGAR database, Nexroc SVCV, an entity associated with the group, reported annual revenue of $1 million to $5 million in a Form D filing submitted Oct. 20. The disclosure has fueled skepticism about its ability to finance a transaction of JYP's size.
The Nexroc Group has announced plans to acquire at least five companies across the US, Japan, Australia and South Korea in the past three weeks.
On Oct. 8, it said it was preparing tender offers for a US luxury group and a Japanese fashion group, followed by announcements targeting listed life insurers in the US and Australia. The group has said it intends to begin the acquisition process on Nov. 10.
Failure to proceed with the planned tender offer could invite further regulatory scrutiny, particularly if authorities find that the announcement was made without genuine intent or sufficient financing and was intended to influence share prices.
South Korea's Capital Markets Act prohibits spreading false information or rumors to manipulate securities prices.
In a statement Tuesday, the FSS described the advance announcement of a tender offer through a press release, without a formal filing, as "very unusual."
"The absence of a tender offer statement makes it difficult to verify the bidder's identity and funding, and the deal may not go through. We urge investors to exercise caution given the potential for share-price volatility," the regulator said.
ch0221@heraldcorp.com
