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Article about the sale of DKME co ltd

https://www.fieldnews.kr/news/articleView.html?idxno=28165

DKME Management Rights to Be Transferred to Deokyang Energen and Wolf, Not Energene
The exclusive contract with the largest shareholder signed on the 16th was terminated just six days later;
the consortium selected as the preferred bidder in the public auction was confirmed as the actual contract partner.
On the 23rd, DKME unusually included the circumstances surrounding the reversal of the sale in five correction disclosures.
The transfer of management rights and the replacement of the board of directors were finalized at the extraordinary general meeting of shareholders on May 11.
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It has been confirmed that the buyer for the majority stake in KOSPI-listed company DKME is the Deokyang Energen-Wolf Consortium, not Energene. This comes after reports in some media outlets that Energene was acquiring management control of DKME, as an actual contract had reportedly been concluded. However, the contract was terminated just six days after it was signed.

According to the Financial Supervisory Service's electronic disclosure on the 24th, DKME disclosed five corrections regarding the sale of its stake on the 23rd. The new disclosures stated that a consortium of hydrogen producer Deokyang Energen and industrial boiler manufacturer Wolf would take the place of the terminated Energen contract.

? Contract concluded outside of open bidding restored to original state after 6 days

DKME has been conducting a public sale process since the end of February this year, led by its sale advisor, Samil Accounting Firm. The process included the receipt of Letters of Intent (LOI) on March 3 and the final bidding on March 17. As a result of the final bidding, the Deokyang Energen & Wolf Consortium was selected as the preferred bidder, and the company and the consortium were in the stage of negotiating contract terms.

The problem is that in the meantime, the largest shareholder, DKME Inc., attempted a transaction separate from the official sale process.

On the 16th, DKME Inc. entered into a direct stock transfer agreement with Energene. The agreement involves the transfer of its entire stake of 52,862,216 shares (22.31%) for a purchase price of 32,774,570,000 won. On the same day, Energene also entered into a subscription agreement for a paid-in capital increase of 10 billion won through a third-party allocation.

The company's board of directors persuaded the majority shareholder of the importance of the open bidding process, and DKME Inc. changed its stance.

As a result, on April 22, DKME Inc. entered into a new contract with the Deokyang Energen-Wolf Consortium for the same shares. The purchase price is 32,774,570,000 won, identical to the Energen contract. The size of the paid-in capital increase increased from 10 billion won to 15 billion won.

This new contract included the April 16 contract with Energene becoming invalid as a prerequisite for performance.

One day later, on April 23, DKME Inc. and Energene signed the agreement to terminate the contract. The return of the deposit and confirmation of non-transfer of shares were stated in the termination agreement.

DKME included the above circumstances in unusually detailed terms in its corrective disclosure.

The disclosure included the sentence, "A public tender was conducted to implement management improvement, and Deokyang Energen and Wolf were selected as preferred bidders. While coordinating contract terms, the largest shareholder signed a contract with Energen on April 16," and the sentence, "The importance of the public tender was explained to the largest shareholder," listed side by side.

The company recorded in its public disclosure the fact that the board of directors and the largest shareholder were at odds over the selection of the buyer.

The Deokyang Energen-Wolf Consortium is a combination of a listed company and an unlisted mid-sized company. Deokyang Energen is an industrial hydrogen production company that was listed on KOSDAQ in January of this year. Based in production bases in Yeosu and Gunsan, it supplies high-purity hydrogen to the semiconductor, petrochemical, and steel industries.

Wolf is a manufacturer of industrial boilers and pressure vessels headquartered in Onsan-eup, Ulju-gun, Ulsan, and boasts the number one global market share in the manufacturing of steam drums, a core component of waste heat recovery boilers.

The structure links hydrogen production (Deokyang Energen), storage and pressure vessels (Wolf), and heat exchangers and chemical equipment (DKME) into a single industrial value chain. All three companies share the commonality of having their business base in the Ulsan region.

The agenda for the DKME extraordinary general meeting of shareholders to be held on May 11 includes amendments to the articles of incorporation, the dismissal and appointment of directors, and the appointment of audit committee members. The board of directors is scheduled to be reorganized with individuals nominated by the Deokyang Energen-Wolf consortium. This date also marks the closing date for the transfer of existing shares and the payment date for new shares in the paid-in capital increase.

The remaining concern is the impact this issue will have on maintaining the listing. DKME Inc. is the party that submitted a management improvement plan to "change the largest shareholder through a public sale" when it was granted a grace period by the exchange last July. Whether that promise is fulfilled will determine the outcome of the deliberation.

This process, in which a transaction separate from official procedures was attempted and then reversed after six days, could affect future deliberations.

? Sales of 136.6 billion KRW, operating profit of 10 billion KRW… A company with solid performance

Meanwhile, DKME originated from Daekyung Machinery Technology, established in 1981. It was listed on the KOSPI in 1989 and subsequently changed its name to its current one after going through KIB Plug Energy. Headquartered in the petrochemical complex in Nam-gu, Ulsan, it operates Plants 1 through 3 and also owns a local subsidiary in Indonesia.

The company's core products are chemical equipment such as heat exchangers, pressure vessels, industrial boilers, and storage tanks. Key global certifications and a track record of securing orders from top-tier clients in the petrochemical and energy industries are cited as the reasons why potential acquisition candidates are showing interest in the company.

Business performance was not significantly damaged before or after the trading suspension. In 2024, it recorded sales of 136.6 billion won, an operating profit of 10 billion won, and a net profit of 2.3 billion won. Over the past three years, the annual average sales have exceeded 100 billion won, and operating profit has remained around 10 billion won.

This is different from many cases where companies became subject to delisting review due to poor financial condition or a loss of competitiveness in their core businesses. This is also the reason why multiple acquisition candidates, including the Deokyang Energen & Wolf Consortium and Energen, flocked to this public sale.

The direct cause of the trading suspension is allegations of embezzlement by the management. Former CEO Kim Sun-ki is accused of diverting approximately 52.86 million shares of DKME stock held by the largest shareholder, DKME Inc., through a separate entity established in Delaware, USA.

The Seoul Metropolitan Police Agency's Financial Crimes Investigation Unit is investigating the case on charges of embezzlement under the Act on Aggravated Punishment of Specific Economic Crimes, and former CEO Kim is reported to have fled overseas. Due to this incident, DKME became subject to a substantive review of its listing eligibility following the suspension of trading in November 2024.

Subsequently, as the trend continued with pro-former management factions remaining on the board and attempting to remove the CEO, minority shareholders pushed through the removal of all existing directors and the appointment of 12 new directors at an extraordinary general meeting of shareholders in February of this year.