Shinsung Tongsang: Tender Offer Fails and How to Take Away Customers From Uniqlo

• Shinsung Tongsang shares rose 10% to 2,510 won today after it was announced that the tender offer failed. Basically, the tender offer failed because the tender offer price was too low.

• Only 26% of the 31.664 million shares responded to the tender offer. Accordingly, the shareholding ratio of Chairman Yeom and his related parties increased from 77.98% to 83.88%.

• Top Ten has benefited from executing its strategy well (such as employing Lee Na-Young in advertisements to grab customers from Uniqlo). Overall, we remain positive on Shinsung Tongsang.

Photo by Alin on Unsplash

Shinsung Tongsang (005390 KS) shares rose 10% to 2,510 today after it was announced that the tender offer (at the tender offer price of 2,300 won) failed. It traded as high as 2,840 won today. Basically, the tender offer failed because the tender offer price was too low. The company's share price today because many investors believe there could be another tender offer later on this year/next year at higher tender offer price. Plus, the fundamentals of the company remains strong.

The tender offer involved 31.664 million shares, representing 22.02% of outstanding shares. However, only 26% of the 31.664 million shares responded to the tender offer. Accordingly, the shareholding ratio of Chairman Yeom and his related parties increased from 77.98% to 83.88%, but did not reach the 95% stake requirement for delisting.

Strong Opposition to This Tender Offer - There has been a strong opposition to this tender offer Shinsung Tongsang's share price reached above 4,000 won in February 2022 and current price is nearly 37% below this level. P/B of the company remains low at 0.8x.

This voluntary delisting of Shinsung Trading is interpreted as a move to avoid the demands of financial authorities who are pursuing a corporate value-up program. Regardless of the tender offer application rate, all shares that are tendered will be purchased and the tender offer price will be paid in cash. Shinsung Tongsang has chosen to voluntarily delist after 49 years of being listed on the Korean stock market. Shingsung Tonsang is a local apparel company with well-known fashion brands such as Top Ten competing against major apparel brands such as Japan's Uniqlo.

In our previous note Tender Offer and Taking Private of Shinsung Tongsang, we noted the following: "In our view, it could be difficult to successfully complete this tender offer at the tender offer price of 2,300 won, mainly because there could be many investors that simply refuse to sell their shares at such low valuations (0.7x P/B). On the business side, the company has successfully captured higher market share and enjoyed higher profit margins especially for the Top Ten apparel brand.

We think that about 5%-10% of the outstanding shares could tender their shares. However, it may be difficult to achieve the 95% necessary to delist the company. Meanwhile, if the company is not able to successfully complete the tender offer this time around and take the company private, it may choose to take more time and eventually take the company private sometime in 2025."

In this tender offer, 8.2 million shares were sold by the existing shareholders. Given that the company has 143.7 million shares outstanding, this would represent 5.7% of outstanding shares which is within our initial estimate of shares that could be tendered.