MBK Partners Ltd. and Mirae Asset Securities Co. are set to force South Korea’s top multiplex cinema chain CJ CGV Co. to surrender the control of CGI Holdings Co., which manages its operations in Asia, investment banking industry sources said on Monday.
MBK and Mirae Asset, CGI’s second-largest shareholder together, notified CJ CGV that they will require the cinema operator to join them in selling stakes in the subsidiary unless the top stockholder buys back shares at a premium, according to the sources.
Those financial investors with a combined 17.58% stake in CGI Holdings in a consortium are eligible to compel CJ CGV from July 19, as per the drag-along rights agreed upon when they signed an investment deal in 2019.
Under the agreement, CJ CGV has 10 business days from the date of notification to decide whether to buy back CGI’s shares from MBK and Mirae Asset.
If CJ CGV does not make a decision by Aug. 1, the financial investors are allowed to sell the largest shareholder’s stake in CGI along with their own to a third party.
CGI makes up almost half of CJ CGV’s earnings and 33% of revenue on average in the past three years.
STRUGGLING CINEMA BUSINESS
MBK and Mirae Asset bought a 28.57% stake in CGI, which oversees CJ CGV Co.’s multiplex operations in China, Indonesia and Vietnam, for 333.6 billion won ($240.5 million) in 2019.
Under the terms of the deal, CJ CGV pledged to list CGI on the Hong Kong Stock Exchange by June 2023 at a valuation of more than 2 trillion won.
If the listing condition is not met, CJ CGV is required to buy back the shares from MBK and Mirae Asset at a premium, or to sell its own stake in CGI alongside theirs to a third party.
CGI failed to go public by the deadline as the cinema business struggled due to COVID-19 and a shift toward over-the-top streaming platforms such as Netflix Inc.
In July 2024, CJ CGV extended the drag-along deadline to this year and repurchased an 8.7% stake from MBK and Mirae Asset for 126.3 billion won under a call option agreement.
11STREET AGAIN?
The South Korean investment banking industry kept an eye on whether CJ CGV would buy back further shares from MBK and Mirae Asset.
The company had only 53.9 billion won in cash and cash equivalents as of he end of the first quarter. It tried to issue 100 billion won in corporate bonds but failed to attract a single investor, forcing securities firms to take all of them.
If CJ CGV does not exercise the call option within the deadline, MBK and Mirae Asset may have to follow the suit of South Korea’s e-commerce platform 11Street Co., investment banking industry sources said.
Its largest shareholder SK Square Co. failed to fulfill its pledge to buy back shares in the e-commerce platform from the two financial investors and gave up its management rights to the unit.
By Eun-Kyung Song and Jun-Ho Cha
norae@hankyung.com
Jongwoo Cheon edited this article.
