Out of almost 10 contenders seeking to acquire Korean game publisher Nexon, five have seemingly made it to the next round.
Citing investment banking sources, Korean media outlets reported that five had been shortlisted. They include Tencent, Kakao, MBK Partners and Bain Capital; and while some are saying that a foreign hedge fund is the fifth candidate, others insist that it is Netmarble.
Nexon refused to comment on the issue as did lead managers, Deutsche Bank and Morgan Stanley, which expect the sale price to top $10 billion.
Of note is whether Netmarble, Nexon’s cross-city rival, is still in the game. When contacted, a senior executive there said he could not confirm anything.
Analysts point out that Netmarble could keep trying to form a consortium with MBK Partners, the Seoul-based private equity fund.
Netmarble-MBK Partners marriage?
“It will take too much money to buy Nexon. Hence, the candidates will try to form a consortium with financial investors,” a source familiar with the issue said.
“For example, Netmarble’s annual sales are around $2 billion. Accordingly, Netmarble will need a financial partner to provide the additional funds. MBK Partners would be a good partner in this regard.”
There have been some calls for Nexon to be sold to another Korean company, not a foreign one, in consideration of its many intellectual properties in games.
Probably due to this, Netmarble has made it clear that if it goes after Nexon it would do so with funds only from Korean entities, and against this backdrop, MBK Partners might be a good option.
MBK Partners is a homegrown equity fund that has a rich experience in mergers and acquisitions. In particular, it spent almost $7 billion to snap up Homeplus, Korea’s No. 2 discount chain, in 2015.
An MBK Partners official refused to comment on the topic.
Who Kakao will opt for?
If Netmarble goes along with MBK Partners, another Korean firm Kakao would also have to pick a mate. On the lips of observers is Tencent.
“Tencent might have the financial leeway to go alone for Nexon. But there is talk that the Chinese government will not let Tencent spend a huge amount of money outside the country. It may team up with Kakao,” the anonymous source said.
Three U.S. companies – Amazon, Electronic Arts and Comcast – reportedly submitted preliminary bids for Nexon late February. But they appear to have failed to make it to the second round.
Yet, industry watchers have not excluded the possibility that they will take part in a consortium headed by other players on the shortlist.
Potential regulatory obstacles
After due diligence, the preferred bidder is expected to be announced in April.
To complete the Nexon deal, however, there are two more key factors – Korea’s anti-trust and law-enforcement agencies.
If Netmarble gobbles up Nexon, the contract would be subject to an intensive review by the Fair Trade Commission in light of the combined market power of Netmarble and Nexon.
In addition, the prosecution may butt in.
Nexon founder and owner Kim Jung-ju decided to sell the profitable company, which netted some $1 billion in profit in 2018, in the aftermath of a long criminal suit over bribery.
Kim was eventually found not guilty on the bribery charges. But earlier this year, a civic group called Spec Watch Korea claimed that Kim and others committed tax evasion amounting to $1.5 billion.
The prosecution started looking into the case in February. In this climate, concerns have arisen that prosecutors’ investigation of overseas Nexon affiliates might lead to a suspension of the sale.