SPC: "Inter-affiliate transactions are just a vertical integration strategy... Fair Trade Commission's sanctions are excessive"

29th Fair Trade Commission Prosecuted SPC Owner, Executives, and Corporation
SPC "Vertical Integration Strategy... Cannot Be a Succession Means"
"Regret Excessive Measures... Will Thoroughly Review Resolution"

[Asia Economy Reporter Choi Saeng-hye] On the 29th, SPC Group officially expressed its position regarding the Fair Trade Commission's criminal complaint to the prosecution, corrective orders, and imposition of fines. SPC Group stated that the consultation on the legality of the sales network and share transfers was conducted objectively, and that transactions between affiliates were part of a vertical integration strategy aimed at improving efficiency.

On this day, the Fair Trade Commission decided to file criminal charges against the chairman and management of SPC Group, including Chairman Heo Young-in, who was found to have been directly involved in the tollgate transactions. Along with this, corrective orders and fines totaling 64.7 billion KRW were imposed. This is the highest fine ever imposed for unfair support activities.

The Fair Trade Commission stated that to maintain control and succession of management rights, the SPC chairman was involved in deciding various support methods for Samlip and that these were executed at the group level. Since SPC effectively controls other affiliates through Paris Croissant (a holding company with 100% ownership by the chairman's family), it was necessary to increase the second-generation shares of Paris Croissant. However, SPC stated, "In cases of private gain by the chairman's family, it is common to support unlisted affiliates with high personal shareholdings, but Samlip is a listed company with relatively low shares held by the chairman's family and many minority shareholders, so it cannot be used as a succession tool."

The chairman's family has never sold shares even once regardless of stock price fluctuations, and since the succession method through enhancing Samlip's stock value costs more than transferring shares of the unlisted Paris Croissant, SPC considers the Fair Trade Commission's claim of 'succession purpose' illogical.

The Fair Trade Commission also judged that through long-term tollgate transactions, Samlip's sales and operating profits sharply increased and its stock price rose, but the consumer prices of products sold by the three bakery affiliates remained high, significantly harming consumer welfare. In response, SPC emphasized, "Samlip performed substantial roles such as product development, production planning, inventory management, marketing and sales, logistics, and other support tasks on behalf of its production subsidiaries, which is a typical 'vertical integration' strategy among food companies to improve efficiency and secure stable supply of high-quality raw materials." SPC also stated that the Fair Trade Commission's comparison with non-affiliate flour prices was a simple comparison that did not consider quality differences, leading to errors in determining normal prices.

The Fair Trade Commission judged that SPC transferred all shares of Mildawon to Samlip, which held fewer shares, to maintain the tollgate structure and avoid gift tax on internal transactions implemented in 2012, and that Paris Croissant and Shani traded Mildawon's shares at significantly low prices despite expected increases in production volume and stock value, providing excessive economic benefits to Samlip.

In response, SPC explained, "Samlip's acquisition of Mildawon shares was made according to the vision of growing into a comprehensive food company, and the shares were transferred at an appropriate value based on evaluations by an external professional institution (Samil Accounting Corporation)." At that time, the chairman's family also transferred their personal shares (13.2%) at the same price, and if they intended to realize profits as the Fair Trade Commission claims, there would be no reason to transfer at a low price while incurring personal losses.

SPC also stated that in the case of Paris Baguette, prices are set similarly or lower compared to competitors in the bakery market, so claims that bread prices increased and harmed consumer welfare lack evidence. The markets for raw materials such as flour and processed meat are already monopolized by large corporations, and regarding liquid eggs, due to past food safety issues such as broken eggs (2010, 2018) and pesticide eggs (2017), it is difficult to see that the competitive base of small and medium enterprises was infringed by Samlip Foods.

SPC expressed "regret over the Fair Trade Commission's excessive measures" and stated, "We will carefully review the decision document when it arrives and determine our response policy."

This content was produced with the assistance of AI translation services.