Netmarble shares slide on report of CJ ENM's stake sale plan

Shares in South Korea's leading game developer Netmarble Corp. plunged 8.7% on Thursday to end at its lowest level in more than one and a half years.

The stock took a battering from a local media report that its second-largest shareholder CJ ENM Co. was planning to sell half of its shares in the game publisher in block deals as early as this month, without citing sources.

Electronic Times reported that the proceeds from the forthcoming stake sale could be used to fund CJ's possible purchase of a stake in SM Entertainment Co., widely credited as the pioneer of K-pop.

The share price of Netmarble closed at 100,000 won, its weakest level since early June 2020. Based on the market price, the shares that CJ is expected to unload are worth 936 billion won ($780 million).

In response to the report, CJ ENM said nothing has been determined in detail about its possible acquisition of SM Entertainment shares and how to fund the deal. It neither confirmed nor denied the report.

The South Korean entertainment powerhouse holds a 21.78% stake in Netmarble as of end-September 2021, after its top founder and Chairman Bang Jun-hyuk with a 24.12% stake.

China's technology giant Tencent Holdings Ltd. owns a 17.52% stake in Netmarble as the No. 3 shareholder.

CJ has been in exclusive talks to buy an 18.72% stake in SM Entertainment Co. from its founder and Cheif Producer Lee Soo-man. The stake on offer is estimated at 600 billion won, including a management premium. 

The share price of SM Entertainment jumped 5.6% to 62,200 won. Investors welcomed the report on expectations that CJ's acquisition of the controlling stake in the country's first-generation music label would resolve its chronic losses.

Shares in SM's units -- SM C&C, an advertising company and SM Life Design, a publisher -- spiked by their daily limit of 30%. 

CJ ENM finished up 4.31% at 128,200 won, beating a 1.67% gain in the broader Kospi market.

In case the size of its stake sale in Netmarble is reduced, CJ ENM is considering selling part of its shares in Studio Dragon Corp., the daily said. CJ ENM is the largest shareholder in the Kosdaq-listed drama production company with a 54.46% stake. Studio Dragon closed up 4.08% at 79,000 won.

BORROWING FOR ENDEAVOR CONTENT

CJ ENM borrowed 800 billion won ($664 million) in a short-term loan to finance its $775 million acquisition of Endeavor Content Parent, LLC, a US film studio, according to the report.  

CJ ENM currently runs around 16 cable TV channels including drama channel tvN and music channel Mnet as well as an over-the-top (OTT) platform TVing. The group is also South Korea's leading film producer and distributor. 
 
It is seeking to capitalize on the global success of K-content ranging from TV series and movies to pop music groups, while competing at home with Netflix as well as Disney Plus, which landed in South Korea last year.

SM Entertainment has produced global K-pop artists such as SuperJunior, EXO, Red Velvet, NCT, Girls' Generation, Shinee and Aespa.

Write to Eui-Myung Park at uimyung@hankyung.com
Yeonhee Kim edited this article.