Nexon Backs Off NCsoft

NCsoft Logo-SOCT. 21, 2015 • Nexon Co., Ltd. has sold its shares in NCsoft Corp. and backed away from the takeover position it previously held in the publisher. Back in 2012, Nexon had purchased a 14.7% stake from NCsoft chief executive Kim Taek-jin. The move was framed as part of a friendly deal between the companies to facilitate mutual cooperation worldwide. Nexon became the largest shareholder, followed by Kim at 9.9% and the National Pension Service at 7.8%. In October of last year, Nexon increased its ownership of NCsoft stock to 15.1%. The Fair Trade Commission in South Korea requires that stakes in publicly-traded companies above 15% must be disclosed. At the time, Nexon said it was adding to its holdings to compensate for drops in NCsoft share prices but there was speculation in the Korean press that the increased stake was preparatory to a hostile takeover. On January 27, Nexon filed with the Financial Supervisory Service to change the classification of its shares from investment to business participation. Nexon maintained it was making the change since all possible collaboration with NCsoft had reached its limits and it wanted to actively participate in management to increase the value of its shares. NCsoft responded by concluding a strategic alliance with mobile content publisher Net Marble Games on February 17. As part of the deal, Net Marble acquired an 8.9% stake in NCsoft. The deal raised the percentage of friendly voting stock ownership – Kim and Net Marble – to 18.8%, comfortably above Nexon’s 15.1%. Later in the month at a regular shareholders meeting, the National Pension Service, which holds 7.8% of NCsoft stock, voted to extend Kim’s term at CEO by three years. Not able to lobby enough investors to its cause, Nexon divested its NCsoft holdings on the 16th of this month.

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Impact: After Nexon raised $1.2 billion in an IPO on the Tokyo Stock Exchange in December of 2011, the company went on a buying and investment spree to swiftly expand into the mobile space. In addition to NCsoft, there were investments in Robotoki, Rumble Entertainment, Shiver Entertainment and Socialspiel; plus the acquisition of Boolean Games, Gloops and Thingsoft outright. The main goal of the NCsoft collaboration was a joint effort to acquire Electronic Arts in 2012 that was unsuccessful. Neither did much come from their joint efforts to create games together. But NCsoft has done very well during this period with popular MMORPGs like Blade & Soul in Asia, and most importantly in China. By contrast, Nexon sees the lion’s share of it revenue coming from mobile content in Japan and Korea. We can see where obtaining management control over NCsoft would be an attractive fit for Nexon. The company has ambitions of being a more important player globally, and NCsoft is much better represented in foreign markets. Establishing footholds in other regions has been a staple of South Korean game companies for years because the home market is already too saturated to support substantial growth numbers. Owning EA would have been a major strike in that direction for Nexon, and taking over NCsoft would have been a useful step. Barring any other major acquisitions, Nexon may have to go slow and rely on creating its own content that can attract foreign consumers.