SPC Responds to Fair Trade Commission's 60 Billion KRW Fine: "We Are Unfairly Treated... Considering Legal Action"

Immediate Explanation for Record-High Fine
Low Owner Stake Means No Succession Means
Not a Toll but High-Quality Raw Material Supply

[Asia Economy Reporter Choi Saeng-hye] The Fair Trade Commission (FTC) has been accused by SPC of "excessive punishment" and expressed grievances after the SPC chairman, executives, and affiliated corporations were reported to the prosecution. SPC stated that once the official decision document arrives, they will thoroughly review it and take legal action.

According to industry sources on the 30th, the FTC imposed a fine of 64.7 billion KRW on SPC for unfair support (unfair internal transactions) and decided to report SPC Group Chairman Heo Young-in, executives, and three affiliated corporations to the prosecution. This is the highest fine ever imposed for unfair support activities. In response, SPC immediately issued a rebuttal denying the facts. The main points of contention between the FTC and SPC are fivefold: ▲ succession purpose and involvement of the chairman ▲ related to tollgate transactions ▲ low-price transfer of sales networks and free provision of trademark rights ▲ low-price transfer of Mildawon shares ▲ others (consumer welfare, hindrance to fair trade).

The FTC stated that tollgate fees were charged to increase the stock value of Samlip for "maintaining control" and "succession of management rights." This was because the second generation could increase their shareholding ratio by contributing Samlip shares held by them in kind to Paris Croissant (100% owned by the chairman's family) or exchanging them for Paris Croissant shares. The FTC judged that there was an intention of private profit appropriation based on this possibility.

In response, an SPC official said, "In cases of private profit appropriation by the chairman's family, it is common to support unlisted affiliates with high personal shareholdings, but Samlip is a listed company with relatively small shares held by the chairman's family and many minority shareholders, so it cannot be a means of succession." The chairman's family has never sold shares regardless of stock price fluctuations, and since the succession method through increasing Samlip's stock value costs more than transferring shares of the unlisted Paris Croissant, the FTC's claim of 'succession purpose' is illogical. There are also flaws in the FTC's judgment when looking at the shareholding structure. Since Paris Croissant holds 40.7% of Samlip shares, if Samlip's stock price rises, the valuation of Paris Croissant's shares also increases, but the additional Paris Croissant shares that the second generation can secure do not increase.

Tollgate transactions are also a point of contention. The FTC stated that Paris Croissant, SPL, and BR Korea paid a total of 38.1 billion KRW by purchasing baking raw materials and finished products produced by eight production affiliates including Mildawon and Egg Farm through Samlip, which had no role. SPC explained this as a typical 'vertical integration' strategy among food companies to improve efficiency and secure stable supply of high-quality raw materials.

Regarding the April 2011 transfer of intangible assets in sales and research & development (R&D) departments from Shani to Samlip at a price lower (2.85 billion KRW) than the fair price (4.06 billion KRW) and the free provision of trademark rights for eight years, SPC stated, "Unlike Shani, which is limited to the baking sector, Samlip has various food-related sales networks and has great potential to grow into a comprehensive food company, so integration centered on Samlip is natural. It is also a natural decision to integrate around a listed company."

Regarding the low-price transfer of Mildawon shares, SPC explained, "The acquisition of Mildawon shares by Samlip in 2012 was made according to the vision of growing into a comprehensive food company, and the shares were transferred at an appropriate value based on an evaluation by an external professional institution (Samil Accounting Corporation)." Regarding the FTC's claim that consumer welfare was harmed, SPC added, "The prices of major products of Paris Baguette are set similarly or lower compared to competitors in the bakery market, so the claim lacks grounds."

An SPC official said, "Samlip has a small shareholding by the chairman's family and is a listed company, so it cannot be a means of succession, and we have sufficiently explained to the FTC that the chairman was not involved in decision-making at all, but it is regrettable that excessive punishment was imposed." He added, "Once the official decision document arrives, we will carefully review it and decide on a response plan."

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