FSS flags 'highly unusual' JYP tender offer announcement for possible unfair trading probe

Two Japan-based investment groups announced plans to acquire up to 50 percent of JYP Entertainment through a tender offer, sending the company's shares sharply higher and prompting financial regulators to flag the possibility of unfair trading. JYP Entertainment said it had received no such acquisition proposal, putting investors on alert.

The Financial Supervisory Service said Tuesday it was "closely monitoring for abnormal trading and potential regulatory violations" related to the tender offer announcement and would "promptly launch an investigation if unfair trading is suspected."

The FSS took particular issue with the fact that the acquisition plan was made public before any formal tender offer process had begun. "It is highly unusual for a party to distribute a press release announcing its intention to make a tender offer before submitting the required disclosure," the regulator said.

The FSS also warned that "it is difficult to verify the identity of the bidder or the source of funds when no tender offer filing has been submitted, and the transaction may ultimately not be completed." The regulator cautioned investors against assuming a deal will go through simply because an announcement has been made.

The controversy began Monday when The NEXROC Group and SVCV, Inc., both Japan-based investment groups, issued a press release announcing plans to acquire a stake in JYP Entertainment. The two companies said they intended to proceed with a tender offer as early as November.

Their stated target is between 25 and 50 percent of JYP Entertainment's outstanding shares.

A tender offer is a method of acquiring shares in a company outside the open market at a predetermined price and within a set period. When plans to secure a large stake become known, they can have a significant impact on the target company's share price.

JYP Entertainment's shares surged after news of the planned tender offer emerged. The stock climbed more than 14 percent in after-hours trading Monday before closing up more than 6 percent in the regular session that day.

JYP Entertainment, however, said it had no knowledge of the proposal. In a regulatory filing, the company stated: "We have not received any proposal regarding an acquisition of our shares."

With the investment groups and JYP Entertainment offering conflicting accounts, financial regulators said they would continue to monitor whether a formal tender offer filing is submitted and track any unusual movements in the company's shares.

The FSS urged investors to exercise caution, warning that share price volatility could increase on the back of announcements alone when the completion of a tender offer remains uncertain.