Activist funds Flashlight Capital Partners (FCP) and U.S.-based Turton Capital have expressed opposition to Orion's bid to acquire JoongAng Ilbo.
They argue that this situation exemplifies the need for reform in South Korea's corporate governance and are calling for improvements in governance and increased shareholder returns.
On October 19, investment banking sources reported that FCP and Turton Capital sent open letters to Orion's board, urging the halt of the acquisition of JoongAng Ilbo and advocating for governance reforms. Recently, Orion was reported to have submitted a letter of intent (LOI) for the acquisition of JoongAng Ilbo's management rights.
FCP pointed out that Orion's enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) ratio stands at 3.0 times, significantly below the global industry median of 11.5 times. Turton Capital noted that while Orion's net profit has nearly tripled since 2018, its total shareholder return of 11.7% falls far short of the KOSPI's return of 164.9% during the same period.
They claim that Orion's participation in the JoongAng Ilbo acquisition represents an example of inefficient capital allocation. Turton Capital estimated that the funds required for the acquisition, including debt and guarantees, amount to approximately 600 billion won, which corresponds to 14% of Orion's market capitalization and exceeds four years' worth of dividends based on last year's figures.
Ryan Albert, CEO of Turton Capital, criticized the move, stating, "Orion, one of the most profitable companies in Korea with a return on equity of about 22%, is looking to pay about 23 times EBITDA for JoongAng Ilbo, which generates a pre-tax return of about 4%. This is an attempt to purchase a newspaper that earns the least with the public's retirement funds (referring to the 9.14% stake held by the National Pension Service in Orion)."
He emphasized that the revised Commercial Act from July last year imposes a duty on directors to act in the interests of all shareholders and treat them fairly, arguing that using Orion's cash to acquire a newspaper contradicts this intent and starkly illustrates why Korean companies are traded at a discount.
They also raised questions about the management accountability of the owner family and the board's oversight function. FCP demanded that Chairman Dam Cheol-gon and Vice Chairman Lee Hwa-gyeong, who do not serve as registered directors yet receive substantial compensation, choose between being appointed as registered directors or receiving no compensation.
Turton Capital pointed out that there were no dissenting votes in the 25 board meetings held from January 2022 to June 2023.
In response, FCP proposed linking executive compensation to stock performance and increasing shareholder returns, while Turton Capital urged that the surplus cash of about 600 billion won remaining after capital investments be used for dividends and share buybacks or cancellations.
FCP requested a written response from the board by November 13, while Turton Capital sought a response without a specific deadline.
* This article has been translated by AI.
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