As the merger of the three subsidiary companies of LG Telecommunications has been granted by the Korea Communications Commission (KCC), investors are showing peaked interest in the future value of the company. Experts say it would be better to exercise appraisal rights, but opinions about future values have differed.
On the 14th, the KCC authorized of the conditional merger of the three subsidiary companies. As a result, LG Telecommunications will take the appraisal right on the 17th and launch commence as a merger January 1st, 2010. LG Dacom and LG Powercom will stop all trade starting from the 29th to January 14th, and enlist as a merger on January 15th.
The conditions of the merger is the following: to submit a plan to develop a broadband information network for fishing and farming villages within 60 days, further activation of wireless internet, and further implementation of the IPTV business plan.
The first issue that has surfaced due to the merger is the difference in price between stocks and the price to exercise appraisal rights. The yesterday closing price of LG Powercom stocks were worth 6100won, which is 500won less than the exercise price of appraisal rights worth 6674 won. LG Telecom stopped at 8520won, and LG Dacom at 18,200won which is a 228won and 1503won difference respectively to the exercise price of appraisal rights.
Experts advise it would be wise to exercise appraisal rights at the cost of the difference in exercise prices and stocks. Experts, also advised to purchase stocks at a price lower than the cost of appraisal rights. Choi Nam-kon, analyst with Tong Yang Securities, explained that, "institutional investors exercising appraisal rights will take their stocks back into funds after the merger and taking the point that dividend yields are at 4.2%, there is a factor of stock increase."
Kim Hong-shik, analyst of NH Investment & Securities also agreed that LG Telecommunications will achieve its 900 billion operating profit after the merger and its stocks will reach 12,000 won. Kim also agreed to the purchase of stocks. Kim stated, "The merger of LG Dacom and LG Powercom, and their recent rise in profits, forecasts a rise in stocks. The profit curve will decelerate, but the rise in profits in the field of high-speed internet and internetphones will bring high yield high profits after 2010."
However, the forecast is not all bright. Byun Seung-jae, analyst of Daewoo Securities, stated that, "Unlike forerunners in the field, LG Telecom has a 20% access resin contribution rate from operating profits. Active rate cuts, a term of the merger, will put much pressure on sales performance." Byun forecasted stocks to reach a lower yield of 10,000 won.
