The suspension of SK Hynix's Solidigm IPO (initial public offering) has highlighted the issues lying between shareholder protection and corporate fundraising. While concerns over shareholder value erosion due to duplicate listing have been alleviated, one option for securing external capital by leveraging an acquired overseas company has also been lost.
It is also pointed out that during the listing review process, as various interpretations were added — ranging from the causes of stock price decline to the purpose of restructuring the corporate governance structure — discussions on the economic effects of fundraising were pushed to the background.
SK Hynix announced on the 23rd that it would suspend its review of the IPO and pre-IPO investment for its grand-subsidiary, Solidigm. The reason cited is that, considering recent capital market conditions and stock price trends, there is a need to re-examine whether listing is the most advantageous choice for existing shareholders.
Concerns have been raised in the market that if Solidigm lists, future profits accruing to SK Hynix shareholders could decrease. Financial regulators have also repeatedly pointed out issues regarding shareholder protection related to duplicate listings.
As controversy grew before specific listing structures, such as the proportion of new share issuance versus secondary sales, were disclosed, the company's burden increased.
Mobileye and Arm: Listings of overseas acquired firms… A means for global companies to utilize capital
Solidigm differs in its starting point from a 'split-off' company created by carving out an internal business of the parent company. It is a company launched after SK Hynix acquired Intel's NAND and storage business for a total of $8.844 billion (11.7 trillion won) in 2020. Growing a business purchased externally and then opening up part of its equity to the market is a fundraising and investment recovery method that global companies have utilized.
Intel's Mobileye is a representative example. Intel acquired Israel-based autonomous driving technology firm Mobileye for approximately $15.3 billion in 2017 and re-listed it on NASDAQ in 2022. The listing was conducted through a public offering of newly issued shares by Mobileye. At the time, Intel stated that through the listing, it aimed to have Mobileye's value evaluated by the market and return that value to Intel shareholders as well.
SoftBank Group also listed Arm, the UK semiconductor design firm it acquired in 2016, on NASDAQ in 2023. At the time, while securing approximately $4.9 billion through basic secondary sales, it maintained approximately 90.6% of its stake. This allowed it to recover part of the investment while maintaining control and having the acquired company's value evaluated by the market.
Being an overseas acquired firm does not exempt a company from shareholder protection issues. The possibility of conflicts of interest arising between the parent and subsidiary after the subsidiary's listing, or the potential for the parent company's value to be discounted, still exists. However, a decrease in ownership ratio does not immediately mean a reduction in economic value.
New share issuance injects funds into the subsidiary, while secondary sales return proceeds to the shareholders who sold their shares. Depending on which method is chosen, the use of funds and the impact on parent company shareholders also differ. To judge the pros and cons of the transaction, one must compare the value of held equity before and after the listing, along with additional capital contribution burdens.
Both the Mobileye and Arm cases utilized IPOs as a path to confirm the market value of the acquired firms and secure room for group-level capital utilization. In contrast, Solidigm was first trapped by the format of 'duplicate listing' before comparing benefits and costs based on specific conditions.
If the IPO path for acquired firms effectively narrows, it could also impact future overseas mergers and acquisitions (M&A). Companies calculate additional fundraising and investment recovery methods from the acquisition stage itself. If a parent company cannot conduct an IPO for its acquired subsidiary simply because the parent is a listed company, there are concerns that the M&A market may shrink.
From stock price decline to corporate governance… Doubts overlapping with the listing review
The controversy surrounding Solidigm's listing did not stop at the issue of equity dilution. During the recent decline in SK Hynix's stock price, the possibility of a Solidigm listing was pointed out as a negative factor. The logic was that if a business with high corporate valuation is listed separately, the investment appeal for the parent company could decrease.
However, it is difficult to explain the stock price decline solely by the Solidigm listing issue. In a situation where semiconductor companies' stock prices are generally being adjusted, concerns about individual companies' corporate governance should be examined separately. In the first half of this year, Solidigm's net income was 5.8396 trillion won, which is at the level of 4.3% of SK Hynix's total net income (consolidated basis).
Doubts have also been raised regarding AI Company, Solidigm's parent company. The structure, in which a separate legal entity is placed between SK Hynix and Solidigm with other SK affiliates participating in investments, has been interpreted as a setup for restructuring the group's corporate governance or sharing Solidigm's profits with other affiliates.
The purpose of establishing AI Company, as announced by SK Hynix, is to invest in promising AI companies centered on the United States and secure related capabilities such as software. Capital contributions from affiliates also have the effect of sharing investment burdens and risks. The capital commitment (capital call) size that SK Hynix promised to AI Company is $10 billion, which differs significantly from the total $1.11 billion promised by SK Inc., SK Innovation, and SK Telecom.
SK Hynix said, "If Solidigm's IPO receives recognition of an appropriate corporate valuation, Solidigm's growth potential, which has not been sufficiently reflected in SK Hynix's current corporate valuation, may be newly evaluated by the market," adding, "The IPO review was one of the options to secure new growth resources for Solidigm and increase shareholder value for SK Hynix."
in INDUSTRY
