Align Partners Asset Management, holding a 14.29% stake as Gabia's third-largest shareholder, sent an open letter to Gabia's board on the 22nd demanding measures to ensure fairness in the ongoing public tender offer. The letter characterizes the transaction as a going-private deal by controlling shareholders, who plan to reinvest their proceeds to maintain control while minority shareholders exit at 48,000 won per share. Align argues this structure creates economic inequality despite identical per-share pricing, violating the Commercial Act's equal treatment requirement for all shareholders.
Align Partners Argues Economic Inequality Despite Identical Price
Align Partners' core argument centers on the economic disparity between controlling and minority shareholders despite the uniform 48,000 won per-share price. According to the letter, minority shareholders receive cash and lose their shareholder status, while controlling shareholders and their affiliates reinvest sale proceeds (after taxes) into the acquirer's equity. This structure allows controlling shareholders to retain management control and capture future value appreciation.
Align cited Commercial Act Article 382-3, which mandates equal treatment of all shareholders, stating that merely paying the same surface price does not fulfill directors' fiduciary duties. The firm also questioned whether the market price used as the tender offer baseline accurately reflects Gabia's intrinsic value. Align had previously sent a letter on June 16 arguing that Gabia's share price failed to reflect the value of its subsidiary KINX. The company did not respond by the July 6 deadline.
Board Must Verify Alternatives Under Fiduciary Duty
Align invoked the business judgment rule to challenge the board's procedural legitimacy, stating that decisions made without adequate information gathering, conflict-of-interest recognition, and alternative consideration do not qualify for business judgment protection. The firm referenced Ministry of Justice guidelines requiring directors to adopt a perspective that considers alternatives.
Align emphasized that Gabia's board must conduct a market check or go-shop process—standard practices in developed capital markets like the United States—to determine whether more favorable acquisition proposals exist. The firm stated that the process of verifying potential superior offers constitutes a mandatory component of directors' duty to consider alternatives.
Align Demands Voting Exclusion for Conflicted Directors
Align classified directors who have agreed to maintain management control through reinvestment as having "special interests" under Commercial Act Article 391-3 and Article 368-3. The firm stated that these directors cannot exercise voting rights on any board resolutions related to the tender offer, including opinion statements, special committee formation, and approval of information provision to the acquirer.
Align submitted four specific questions to the board: (1) verification procedures and basis for determining whether the tender price reflects intrinsic value, (2) measures taken to explore alternative acquirers beyond the current buyer, (3) whether the acquirer conducted due diligence and whether the board approved information provision, and (4) names of directors obtaining personal benefits, nature of their interests, and whether their voting rights were excluded. Align noted that the acquirer likely conducted pre-offer due diligence, raising questions about whether proper board resolutions authorized internal information transfers.
Three Procedural Measures Required Before Tender Recommendation
Align demanded three specific actions from Gabia's board. First, establish a special committee composed primarily of independent outside directors, separate from controlling shareholders and the acquirer, to decide whether to recommend the tender offer. Second, appoint an independent external financial expert at company expense to verify price fairness using discounted cash flow (DCF) analysis and publish the results. Third, initiate a market check or go-shop process to identify potential acquirers offering superior terms, guaranteeing due diligence opportunities for interested candidates.
Align stated the board must not recommend the current tender offer terms until completing all three measures. The firm demanded an official response by the 31st, published on Gabia's website or through other means accessible to all shareholders. Align also requested Gabia's auditor, under Commercial Act Article 412, to verify whether information provision by conflicted directors involved legal violations. The firm stated it will actively consider all legal remedies permitted under the Commercial Act and Capital Markets Act if adequate responses are not provided.
FAQ
Why does Align Partners argue the tender offer is unfair despite identical per-share pricing?
Align argues that while all shareholders receive 48,000 won per share, controlling shareholders reinvest their proceeds to maintain management control and capture future value gains, whereas minority shareholders exit entirely. This creates economic inequality despite surface-level price uniformity, violating the Commercial Act's equal treatment requirement.
What procedural measures does Align demand before the board recommends the tender offer?
Align demands three measures: formation of an independent special committee to evaluate the offer, appointment of external financial experts to verify price fairness using methods like DCF analysis, and initiation of a market check process to determine whether superior acquisition proposals exist. The board must complete all three before recommending the current offer.
