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THE INVESTOR
November 21, 2019
Big Reunion

Deals

NetMarble investors look Woongjing Coway deal with a wary eye

  • PUBLISHED :October 11, 2019 - 16:09
  • UPDATED :October 11, 2019 - 16:21
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NetMarble, South Korea’s leading mobile game maker, made a rare move on Oct. 10 -- bidding for rental company Woongjin Coway. The news of the unexpected bid pushed up the share price of Woongjin Coway by as much as 22 percent in morning trade on Oct. 11. Woongjing Thinkbig, which is selling 25.08 percent or 18.51 million shares in the company for a price tag between 1.85 trillion ($1.56 billion) and 2 trillion won, also saw its shares soaring by 30 percent.

But shares in NetMarble went the opposite direction, declining more than 5 percent on Oct. 11. NetMarble said it participated in the bid as part of the company’s efforts to look for a new growth engine. Cash-rich NetMarble earlier this year attempted to acquire archrival Nexon, a deal estimated to cost 10 trillion won, but Nexon’s founder reportedly refused to sell the company to its local competitor.

“To strengthen the game industry and to discover a new growth engine, we’ve decided to join the bid for Woongjin Coway, the No. 1 in the offline subscription business,” the company said in a statement. The game maker added that it plans to combine NetMarble’s top-notch technologies in artificial intelligence, cloud computing and big data technologies with Woongjin Coway’s business to develop a smart home subscription business.

NetMarble has been eager to identify a new cash cow. NetMarble’s operating profit margin fell to 12 percent in 2018 from 21 percent in 2017 partly due to delayed launches of new games and a lack of original intellectual properties. 


Related: 
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But investors are viewing NetMarble’s participation with a wary eye. Some take it as an ominous sign that potential contenders have dropped out from the competition. On Oct. 8, SK Networks, which was shortlisted as one of the potential buyers in August, dropped the deal, citing high valuation. Woongjin Thinkbig reportedly asked 2 trillion won for 25.08 percent stake and management rights, but SK Networks, owner of Korea’s second largest rental company SK Magic, refused. To add to the disappointment, after the deadline for the bidding ended Oct. 10, it turned out the most likely candidates, global private equity firm Carlyle Group and Chinese home appliance maker Haier, had also withdrawn.

Some are looking at NetMarble’s move as unfamiliar as when it bought stakes in companies like Big Hit Entertainment, the management company of boy band BTS, and Kakao Games, though those were in areas that could at least be tangentially connected to its existing business.

“For NetMarble, it is probably about diversification so it doesn’t necessarily have to be about games,” an industry source said. “The rental service, part of the subscription economy, is growing fast globally and Woongjing Coway has a competitive edge in this regard.”

Woongjing Coway occupies 35 percent of the country’s rental market, with revenue of 2.7 trillion won and operating profit of 515 billion won in 2018. This compares to NetMarble’s revenue of 2.02 trillion won and operating profit of 241 billion won in the same period.

Korea Investment and Securities, manager of the Woongjin Coway deal, will review bidders and announce a preferred bidder on Oct. 14.

By Park Ga-young (gypark@heraldcorp.com)

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