Cancellation Possible if Stock Purchase Claims Reach 1.139 Million Shares... Will Rainbow8's 5 Billion Won Acquisition Pass the General Shareholders' Meeting?

Artist Company has decided to hand over its ad-tech platform business to Rainbow8 for 5 billion won. On the surface, this is a business reorganization to focus on the entertainment and content business, but it remains to be seen whether the transaction will be completed as planned.

Right now, stock purchase claims are the variable. If shareholders above a certain size exercise their stock purchase claims, Artist Company can cancel the contract. The acquirer, Rainbow8, also turned to a deficit last year.

Cancellation Possible if Stock Purchase Claims Exceed 1.139 Million Shares

Artist Company will hold a general shareholders' meeting on September 2 and put the platform business transfer agenda up for a special resolution. If the agenda is rejected, the business transfer agreement will lose its effect. Even if it passes the general meeting, the opposing shareholders' stock purchase claims will remain. The expected purchase price is 2,634 won per share. The period for receiving opposing intentions is until September 1, and the period for stock purchase claims is from September 2 to September 22.

The 2,634 won is the arithmetic average of the volume-weighted average closing price of 3,319 won for the recent 2 months, 2,466 won for the recent 1 month, and 2,118 won for the recent 1 week. It is 25.4% higher than the closing price of 2,100 won on July 21, right before the board of directors' resolution. Compared to the closing price of 2,415 won on the 18th, it is also about 9.1% higher. If the stock price is lower than the purchase claim price, it may be more advantageous to claim the purchase to the company than to sell the shares in the market. However, only shareholders who acquired the shares prior to the board of directors' resolution, went through the procedures of notifying their opposing intentions and claiming the purchase, and continuously held them until the exercise date can exercise this right.

The disclosure states that if the stock purchase claim amount exceeds 3 billion won, Artist Company can cancel the contract by notifying Rainbow8 in writing. Converted into the number of shares, this is 1,138,953 shares. This is about 7.3% of the total 15.591 million issued shares. The transaction is not automatically canceled just because more than 1.139 million shares are claimed. The company can also choose to proceed with the transaction through a board of directors' resolution. However, given that the 3 billion won threshold is the explicit criterion for determining whether to cancel the contract, it is clearly the first gateway to the completion of the transaction.

The schedule also needs to be rearranged. According to the disclosure, the transfer base date is September 16, but the stock purchase claim period ends on September 22. If it goes as scheduled, it will only be known whether the claim amount exceeded 3 billion won after the transaction closing date. The company stated that the actual transaction closing date may change and that it will disclose it again once the schedule is confirmed.

Has 7.02 Billion Won in Financial Assets, but Also 5.05 Billion Won in Short-term Borrowings

Rainbow8's capital on the disclosure is 220 million won. Looking only at the capital, the company seems too small to acquire a 5 billion won business. However, capital is not necessarily the funds the company can mobilize. As of the end of last year, Rainbow8's assets were 14.6 billion won, liabilities were 7.1 billion won, and equity was 7.5 billion won. Cash and cash equivalents are only 50 million won, but it holds 7.02 billion won in short-term financial assets. Combined, they amount to 7.07 billion won. Looking just at the books, it can cash out its holding financial assets to pay the 5 billion won acquisition price.

The problem is after the transaction. If it pays 5 billion won without additional financing, cash and short-term financial assets will roughly leave 2.07 billion won by simple calculation. On top of this, there are 5.05 billion won in short-term borrowings that must be repaid within one year. Among the 13.32 billion won in current assets, 4.19 billion won in advance payments and 970 million won in short-term loans to executives and employees are also included, meaning not all current assets can be used as acquisition financing. Existing borrowings have guarantees and collateral attached. The Korea Technology Finance Corporation provided a loan guarantee of 1.99 billion won, and the CEO stood as a joint guarantor with a limit of 2.99 billion won. The 1.7 billion won collateral loan is secured by a patent pledge set at 2.04 billion won.

The performance trend is also not good. Rainbow8's sales decreased by 13% from 13.12 billion won in 2024 to 11.42 billion won last year. Operating profit of 240 million won turned into an operating loss of 470 million won, and net profit of 220 million won turned into a net loss of 540 million won. Retained earnings also turned into a deficit from 270 million won to -260 million won. The 7.5 billion won in equity mostly consists of 7.55 billion won in capital surplus accumulated during past investment attractions. It is not in a state of capital impairment, but it is not a structure that has accumulated capital through recent operations.

The business Rainbow8 is to acquire also posted a deficit last year. In the disclosure, Artist Company listed the sales of the platform business subject to transfer as 9.8 billion won. An external evaluation report separated the business unit's financial information and calculated sales of 9.21 billion won and an operating loss of 210 million won for 2025. The business unit figures are based on data prepared and provided by the company and are not audited or reviewed financial statements. According to this data, the business unit's sales decreased from 18.24 billion won in 2023 to 9.84 billion won in 2024, and to 9.21 billion won last year. It means Rainbow8, which turned to a deficit in the process of shrinking top-line growth, is acquiring another deficit-ridden business.

Of course, if the acquisition is successful, Rainbow8's size will significantly expand. The 9.8 billion won in disclosed sales of the transferred business is about 86% of Rainbow8's sales. If they can bundle customers, data, and advertising platforms together to reduce costs, there is also room to boost profitability. The external evaluation agency predicted that the transferred business would record 10.59 billion won in sales and 1.22 billion won in operating profit this year. This is a forecast of turning from a 210 million won deficit last year to a 1.22 billion won surplus this year. The success or failure of this acquisition ultimately depends on whether it can create this level of earnings rebound.

Contract States 5 Billion Won, External Evaluation Report States 4 Billion Won

The transaction amount differs depending on the disclosure document. The major matters report and the business transfer agreement list the transfer value as 5 billion won. According to the contract, Rainbow8 must pay 5 billion won in a lump sum in cash on the transaction closing date. On the other hand, the external evaluation report submitted on the same day listed the 'actual expected transfer value' agreed upon by Artist Company and Rainbow8 as 4 billion won. The business value calculated by the external evaluation agency is also between 3.62 billion won and 4.27 billion won.

The contract amount of 5 billion won is 730 million won, or about 17%, higher than the top end of the evaluation range. Selling the business at a high price is advantageous for Artist Company. However, the price determined as appropriate by the external evaluation agency is not the 5 billion won in the contract, but 4 billion won. For Artist Company, this is a transaction to clear out the ad-tech business and focus on content, management, and IP commerce. For Rainbow8, it is an opportunity to bring in a business with a sales scale comparable to its existing company. Now, the final gateway will be whether the stock purchase claim amount exceeds 3 billion won, and how Rainbow8 will raise the 5 billion won. Attention is gathering on Rainbow8's growth story after the acquisition of the business unit.