TOVIS Reveals Hidden 670 Million Won Lawsuit... Quietly Lowers R&D Target for Automotive Electronics Subsidiary

TOVIS, which is pursuing a spin-off, disclosed an additional lawsuit and lowered the investment target of the newly established entity in a corrected securities registration statement submitted ahead of its general meeting of shareholders. In effect, the risks have increased and the growth engines have been adjusted more conservatively compared to what was initially announced to the market.

According to the disclosure by TOVIS on the 21st, the number of lawsuits the company is responding to as a defendant has increased from one to two. The newly specified lawsuit is a claim for damages filed by Company J, with a litigation value of 666 million won and approximately 500,000 dollars. TOVIS explained that it cannot reasonably estimate the impact this lawsuit, currently in its first trial, will have on its future financial statements, thereby formalizing the risk of potential contingent liabilities.

The willingness to invest in the automotive electronics business, a key growth pillar, has also somewhat retreated. Neoview, the newly spun-off entity, lowered its research and development (R&D) investment ratio to sales for the next three years from the previous "4% or more" to "3% or more." This is interpreted as the new entity, which is about to survive independently, turning to a conservative management stance considering financial soundness rather than aggressive investment.

It also clearly revealed the financial limitations it will face after the spin-off. Until now, TOVIS freely utilized cash earned from its casino business to invest in the automotive electronics business, but such internal financial support will become impossible after the spin-off. Ultimately, Neoview must raise external funds on its own, and the company admitted the risk that it could experience financial difficulties if an economic slowdown coincides.

The fragile corporate governance is also a point investors should note. The stake of the largest shareholder, CEO Kim Yong-beom, is a mere 11.0%, and even combining all friendly stakes, it only stands at 16.93%. To defend management rights, TOVIS has signed a commitment with friendly shareholders to jointly exercise voting rights for three years, but it admitted that it could be left defenseless against the risk of management control changes after this period ends.

TOVIS will make a final decision on the spin-off agenda at the general shareholders' meeting on June 2. The spin-off date is July 1, and stock trading will be temporarily suspended starting June 29. Afterward, the company plans to proceed with the modified listing of the surviving entity and the relisting of the newly established entity on July 20. Attention is focused on how the belatedly revealed lawsuit and the downward adjustment of the investment target will affect shareholders' judgments.