Shares in Nexon, two listed arms rise on M&A hopes

The unexpected death of Nexon founder Kim Jung-ju stoked market speculation about a possible change in its ownership structure and top management, sending its shares and two subsidiaries sharply higher on Wednesday.

Nexon, South Korea's leading online game developer, shot up 6.2% to close at 2,734 yen on the Tokyo Stock Exchange. Its two game software developers, traded on Kosdaq, also rose sharply.

NAT Games closed up 5% at 17,650 won. But the stock is still down 33% from its record high of 26,350 won reached in early January.

Nexon GT leapt 7% to end at 18,400 won. The Kosdaq-listed stock rallied to its all-time high of 25,450 won in early January of this year.

There seems to be a low likelihood of Nexon undergoing a drastic change in the immediate future, industry watchers say. The South Korean game developer has shifted into a professional management system last year, after the late Kim resigned from the chief executive position at Nexon's holding company NXC Corp.  

But some investment bankers see a high chance of his family reviving a plan to sell their management rights over Nexon to pay for inheritance taxes estimated at several billion dollars. The late Kim in 2018 vowed not to hand over the company's management rights to his two daughters. 

Kim Jung-ju and his families hold a 98.28% stake in Nexon’s holding company NXC, including Kim’s 67.49% stake.

The holding company then controls 47.4% of Nexon, including an 18.8% stake owned by its wholly-owned investment arm NXMH.

"Kim's family may need to pay several trillion won in inheritance taxes on Kim's assets estimated at over 10 trillion won," said one investment banker. "It would be inevitable to sell part of their shares (in Nexon) to pay the tax." 

The engineer-turned-entrepreneur was one of the few billionaires in South Korea. But his bereaved family declined to comment on inheritance issues.

SELLOUT ATTEMPT IN 2019

In early 2019, Kim put a combined 48% stake in Nexon up for sale, including the shares owned by the holding company. 

Among the three final candidates of KKR, MBK Partners and domestic rival Netmarble Corp., it was a tight race between MBK and Netmarble, according to multiple sources with knowledge of the situation. 

But their bids fell far short of the asking price of $8.5 billion, or 10 trillion-10.5 trillion won, at an enterprise value of over 20 trillion won. 

Netmarble managed to raise its bid price to $8 billion at the last minute, but the late founder abruptly stopped the sale process without giving a clear reason.

At the time, Nexon was traded at 1,617 yen per share, about 40% less than its current market value.

The bidders are still scratching their head, wondering what made Kim withdraw the sellout plan. They now regret not sharply raising their bid prices.

Last month, Saudi Arabia’s Public Investment Fund (PIF) said it had accumulated its stake in Nexon to 5% in the Tokyo stock market for $883 million, becoming its fourth-largest shareholder.

KOREA'S WALT DISNEY

Back in 1996, the company released the world's first massively multiplayer online role-playing game, the Kingdom of the Winds, followed by other hit titles MapleStory, Dungeon Fighter and KartRide.

The late Kim had envisioned a Walt Disney of South Korea. In its first step toward the goal, it hired Disney's former Chief Strategy Officer Keavy Mayor as an external director in 2020 and other ex-senior executives of Disney and Marble Studio in the following year for its newly-launched entertainment unit in the US.

"Chairman Kim had discussed various global entertainment businesses with the newly-hired global talent," said a Nexon official.

Last year, Nexon shared a plan to expand its intellectual property portfolio to include the entertainment sector.

To that end, Nexon invested $400 million in AGBO, founded by Avengers film series co-directors Anthony and Joe Russo and film producer Mike Larocca. Nexton said at the time that it might put another $100 million into the US entertainment company. 

"Chairman Kim played a pivotal role for Nexon, drawing its big picture. Now that he passed away, Nexon may take more time to map out future business strategies," said a game industry source.

Write to Ju-Wan Kim and Jun-Ho Cha at kjwan@hankyung.com
Yeonhee Kim edited this article