Contentree JoongAng (036420), an affiliate of JoongAng Group, hit its lower price limit after the merger between its subsidiary Megabox JoongAng and Lotte Cinema fell through. The setback, coming on top of the broader liquidity crisis at JoongAng Group, triggered a wave of panic selling.
According to the Korea Exchange, Contentree JoongAng closed Tuesday at 2,450 won, down 30% from the previous session. The plunge was attributed to the suspension of merger proceedings between Lotte Cinema and Megabox, which was disclosed the previous day. Lotte Shopping said the memorandum of understanding (MOU) it had signed to pursue the merger of the two companies expired on the 30th of last month, and that it was halting related procedures.
The merger between Lotte Cinema and Megabox was a big deal that had been pursued since last year. The two sides had enlisted UBS and simultaneously sought external financing through the merged entity. The plan was aimed at restructuring the slumping theater industry, seeking a breakthrough through the consolidation of overlapping screens and cost efficiencies. In particular, for JoongAng Group, which faced financial pressure, restructuring the Megabox business through the merger was seen as unavoidable. Lotte Cinema and Megabox are regarded as the No. 2 and No. 3 players in Korea's multiplex cinema market.
However, observers say the two companies missed the right timing as the merger negotiations dragged on. Ultimately, with Contentree JoongAng and other JoongAng Group affiliates entering sweeping rehabilitation proceedings and the negotiation deadline passing, the merger between Lotte Cinema and Megabox was scrapped. As a large volume of disappointed sell orders from investors who had expected the deal to close also flooded in, Contentree JoongAng remained at its lower limit from early in the session.
The Korea Exchange designated Contentree JoongAng as an administrative issue on the 16th of last month, and trading was suspended before resuming on the 1st of this month. On the previous day, its first day of resumed trading, Contentree JoongAng also hit its lower limit, closing at 3,500 won.
On the 30th of last month, the Second Rehabilitation Division of the Seoul Rehabilitation Court decided to commence rehabilitation proceedings for JoongAng Group affiliates including JoongAng Holdings, Contentree JoongAng, JoongAng P&I and Megabox. For JTBC, it approved an application for autonomous restructuring support (ARS). The court decided to withhold its judgment on whether to commence rehabilitation proceedings for JTBC until the 30th of this month. Contentree JoongAng must submit its rehabilitation plan by December 15 this year.
