11th Street’s ‘forced sale worth 5 billion won’ begins in earnest, will Q10 be relisted?

11th Street sale manager selected, sale price estimated at 5 billion won
Parent company SK Square inevitably reflects valuation losses worth hundreds of billions of won
Amazon, Alibaba Group, Q10, etc. mentioned as potential acquisition companies

11th Street has begun its search for a new owner in earnest. The lead in the sale is held by financial investors (FIs) with a stake of 18.18%. Currently, FIs have drastically lowered their expectations and are hoping for a sale price of around 5,000 billion won, which is just the investment principal and interest. In this case, SK Square, the largest shareholder, will receive no profit at all and will record a loss of hundreds of billions of won in book value. Meanwhile, interest in the industry is focused on whether Q10 will be re-entered.

Resale is carried out using a ‘waterfall’ method in which FI recovers funds first.

According to the investment banking (IB) industry on the 8th, Nile Holdings Consortium (hereinafter referred to as Nile Holdings) selected Citi Global Market Securities and Samjong KPMG as sale managers last week to promote the resale of 11th Street. Nile Holdings is a special purpose corporation established to invest in 11th Street, and is comprised of the National Pension Service, Saemaeul Geumgo, and H&Q Korea, a private equity fund management company.

In 2018, Nile Holdings invested 11 billion won in 5,000th Street and took an 18.18% stake, but amid continued operating losses and deteriorating e-commerce industry conditions, 11th Street extended the investment agreement’s five-year deadline (until September 5 last year). As I was unable to complete my initial public offering (IPO), I was driven to a dead end. Accordingly, SK Square, the parent company of 9th Street, gave up exercising the call option, and FI began the sale directly. Due to SK Square’s waiver of the call option, FIs ended up exercising the ‘drag-along right to demand sales of SK Square’, which allows them to sell SK Square shares to a third party. The fate of 30th Street has shifted from SK to FI. If the resale is successful, it will be Korea’s first sale through drag-along. The majority shareholder’s waiver of the call option and FI’s drag-along exercise have been accepted as a final scenario in the capital market as it implies that the majority shareholder will hand over management rights to the FI.

This resale will be carried out in a waterfall manner, with FI recovering the funds first. At the time of investment in 2018, 11st’s corporate value was around 3 trillion won, but FIs are hoping for a sale price of 5,000 billion won. This is equivalent to the investment principal of 5,000 billion won plus a guaranteed return of up to 8% per year. This can be interpreted as a plan to reap only what is sown.

Will ‘Q10’ re-enter the XNUMXst acquisition battle?

With the FI-led sale of management rights confirmed, interest in potential acquirers of 11th Street is also growing. It is known that leading domestic and foreign strategic investors (SI) are already expressing interest behind the scenes. Currently, companies that can be acquired include Amazon, an American e-commerce company that has a strategic partnership with 11th Street, and Alibaba Group, which has recently been accelerating its efforts to target the Korean e-commerce market.

There is also interest in whether Singapore-based e-commerce company Q10 will rejoin. Q3 acquired domestic e-commerce companies such as Timon and WeMakePrice one after another in order to list its logistics subsidiary QExpress on Nasdaq. The analysis is that Q4.6 still needs to acquire 11st because the sellers of Timon and WeMakePrice overlap. That’s because the open market share of Timon, WeMakePrice, and Interpark Commerce, which Q7 has already acquired, is only 3%, including all three companies. On the other hand, XNUMXth Street’s share is XNUMX%, which is higher than the three companies combined.

Previously, Q10 began negotiations to acquire shares in 1th Street in the second half of last year, but the negotiations broke down at the last minute when it requested SK Square to guarantee payment of the debt that would arise from raising investment funds. In the distribution industry, as the legal and financial due diligence data conducted during the equity investment negotiations with Q10 have already been secured, there is also a view that the sale could be completed as early as the first quarter of this year if FI is quick.

However, once the sale is completed, an adjustment in SK Square’s book value appears inevitable. LPs (investors) and GPs (management companies) can avoid losses, but without additional profits, SK’s profits will be zero. The book value of SK Square’s 11% stake in 80.26st is KRW 1 trillion, which is the same as the stock acquisition cost, and based on a 494% stake, the corporate value is KRW 100 trillion. However, if it is sold at around 1 billion won, a valuation loss of hundreds of billions of won must be reflected. In relation to this, an 3,075th Street official said, “This is a discussion between financial investors and SK Square, so there is nothing we can confirm other than the selection of the manager.”