VIP Asset Management has welcomed the tender offer for Lotte Rental by private equity firm TPG, while urging for revisions to the mandatory tender offer legislation that recently passed through the National Assembly's Political Affairs Committee. The current bill allows major shareholders to sell their stakes first, which VIP argues does not adequately guarantee selling opportunities for minority shareholders.
On November 12, VIP Asset Management, the second-largest shareholder of Lotte Rental, announced its decision to tender all of its shares in the ongoing offer by TPG.
On October 30, TPG acquired a 61.17% stake in Lotte Rental from the Lotte Group at a price of 59,000 won per share. The firm is currently conducting a tender offer for the remaining 38.83% (14,097,325 shares) at the same price from November 6 to December 3. Minority shareholders can sell their shares at the same price as the major shareholders.
Previously, Affinity's proposal to acquire Lotte Rental involved the Lotte Group selling a 56.2% stake at 77,115 won per share, but minority shareholders were not given the same opportunity. At that time, the Lotte Rental board decided to allocate new shares to Affinity at 29,180 won each. VIP Asset Management opposed the capital increase, arguing that only major shareholders benefit from management premiums while minority shareholders bear the dilution risk. Affinity's acquisition fell through following a decision by the Fair Trade Commission to prohibit the merger.
VIP Asset Management has raised concerns about the provision in the Political Affairs Committee's bill that allows major shareholders to buy shares first. The bill mandates that if a major shareholder acquires more than 25% of a listed company's shares and becomes the largest shareholder, they must conduct a mandatory tender offer for 50% plus one share, including shares acquired from the major shareholder prior to the tender offer.
In this scenario, with an average major shareholder stake of 44.3% among KOSPI 200 companies, minority shareholders can only sell about 10% of their holdings. If the major shareholder's stake exceeds 50%, there is no mandatory tender offer for minority shareholders. In the past six years, 22 out of 50 major mergers and acquisitions (44%) involved transactions where the major shareholder's stake was over 50%.
Applying the Political Affairs Committee's provisions to Lotte Rental means that TPG, having acquired the Lotte Group's 61.17% stake, exceeds the mandatory tender offer threshold of 50% plus one share. Although TPG is voluntarily conducting a tender offer for the remaining shares, legally, there is no additional amount it must acquire from minority shareholders.
There have been numerous instances where minority shareholders have faced stock price decline risks following changes in management control. An analysis by VIP Asset Management of 106 transactions involving changes in management control from 2020 to 2026 found that in 92 cases where major shareholders sold their stakes at a premium, they received prices 33% higher than the stock price prior to the initial announcement. In contrast, minority shareholders who could not participate in the sale saw their stock prices drop by 13% after one year and 37% after three years. For the 58 cases that had passed three years, the median decline compared to the market was 29%.
VIP Asset Management proposed maintaining the mandatory tender offer threshold of 50% plus one share while excluding the major shareholder's preemptive purchase, suggesting a 'proportional tender offer' as an alternative. This would allow both major and minority shareholders to participate in the same tender offer, and if the total amount tendered exceeds the planned purchase quantity, the same ratio would apply to all shareholders. The number of shares and total amount purchased by the acquirer would remain the same as under the existing Political Affairs Committee provisions, thus incurring no additional financial burden.
VIP also cited systems in major foreign countries as a basis for its proposal. Japan's mandatory tender offer system, implemented in 1997, does not allow preemptive purchases by major shareholders and provides the same selling opportunity to all shareholders. Countries like the UK, EU, Hong Kong, and Singapore allow preemptive purchases by major shareholders but ensure that minority shareholders have the opportunity to sell all their remaining shares.
International institutional investor groups have also called for revisions to the Political Affairs Committee's provisions. The Asian Corporate Governance Association (ACGA), with approximately $40 trillion in assets under management, sent a letter to the National Assembly and government on November 7. The International Corporate Governance Network (ICGN), with about $90 trillion in assets, also urged the National Assembly's Political Affairs Committee on November 9 to provide the same selling opportunity to all shareholders, including major shareholders.
Kim Min-guk, CEO of VIP Asset Management, stated, "It is contradictory to establish a principle of equitable treatment for shareholders in the Commercial Act, yet allow only major shareholders to sell all their shares when management control changes, leaving minority shareholders without the opportunity to sell."
* This article has been translated by AI.
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