Miko Subsidiary Produces Parts Occupying 95% of Japanese Market... Considering Conversion to Holding Company

The government has rolled up its sleeves to foster small and strong companies in the materials, parts, and equipment (SoBuJang) sector. Last year, when the Japanese government restricted exports of key semiconductor and display materials to Korea, a state of emergency was declared for major domestic exporters including Samsung Electronics. At that time, Samsung Electronics Vice Chairman Lee Jae-yong personally visited Japan to resolve the issue. Due to the strengthening of protectionism and the impact of the COVID-19 pandemic, changes are also occurring in the global value chain (GVC). Amid growing concerns that failure to secure core materials, parts, and equipment stably could lead to being left behind in competition, Samsung Electronics invested 74 billion KRW in four domestic SoBuJang companies on the 2nd, the day it held its 51st anniversary ceremony. This is analyzed as a 'declarative' investment to directly acquire shares in small and strong companies in the SoBuJang sector, which had a high dependence on overseas sources, and to maintain long-term cooperative relationships. Asia Economy examines the technological capabilities, financial structure, and growth potential of Mico and LOT Vacuum, among the companies in which Samsung Electronics invested.

[Asia Economy Reporter Jang Hyowon] Mico's subsidiary Mico Ceramics received an investment of over 20 billion KRW from Samsung Electronics. This is analyzed as a result of Mico physically splitting off its semiconductor equipment and parts business to facilitate investment. It is also estimated that Mico will pursue a holding company conversion to strengthen its control through both physical and spin-offs.

Managing Subsidiaries through Physical Split

On the 2nd, Mico announced that its 100% subsidiary Mico Ceramics decided to conduct a third-party allotment paid-in capital increase worth 21.7 billion KRW targeting Samsung Electronics. The purpose of the funds is 10 billion KRW for facility funds and 11.7 billion KRW for operating funds.

Through this capital increase, Samsung Electronics will acquire a 15.7% stake in Mico Ceramics. Mico's shareholding will decrease from 100% to 84.3%. Samsung Electronics' investment in Mico Ceramics aims to secure a stable demand channel for key products and strengthen strategic alliances.

Mico Ceramics' main products include ceramic heaters, electrostatic chucks (ESC), and other ceramic consumables used in semiconductor equipment. As of the end of last year, the sales composition was 57.4% ceramic heaters, 8.9% electrostatic chucks, and 33.7% other consumables.

Ceramic heaters are consumable parts used in the semiconductor front-end equipment 'PECVD,' which uniformly deliver heat to wafers for thin film deposition. Electrostatic chucks are high-performance parts installed in the semiconductor front-end equipment 'Etcher,' which fix wafers in the chamber using static electricity.

The market size for these ceramic heaters and electrostatic chucks is approximately 500 billion KRW and 800 billion KRW respectively, with Japanese companies holding a 95% market share. Therefore, Samsung Electronics' participation in the capital increase of Mico Ceramics is interpreted as part of its SoBuJang investment strategy.

Mico Ceramics was established in February through a physical split by Mico. Mico operates businesses producing parts for semiconductor and display equipment and parts cleaning. It is understood that only the semiconductor front-end equipment and parts business was separated to receive investment.

Mico manages various subsidiaries through physical splits. Its main business groups are divided among three subsidiaries and seven sub-subsidiaries. Comico, a KOSDAQ-listed company in which Mico holds a 39.9% stake, was also established as a subsidiary through a physical split in 2013. On the 28th of last month, Mico decided to physically split off its solid oxide fuel cell (SOFC) business to establish a new corporation called 'Mico Power.' It also holds a 27.8% stake in its affiliate Mico Biomed.

Will They Use the 'Treasury Stock Magic'?

The market views Mico's physical split moves as a step toward converting into a holding company system. In fact, Mico is purchasing treasury stocks simultaneously with the physical split. This is analyzed as an effort to strengthen control by utilizing treasury stocks in the future.

This year, Mico signed trust contracts for treasury stock acquisition worth 1 billion KRW and 2 billion KRW with KB Securities and Samsung Securities respectively, acquiring a total of 253,679 shares. Including the 525,661 treasury shares it already held, it now holds a total of 779,340 shares (2.48%).

Mico's holding company conversion is expected to involve a spin-off followed by a contribution in kind (business company shares) to the holding company by the major shareholder. The anticipated scenario is that Mico will first be split into a holding company (Mico A) and a business company (Mico B). Currently, Chairman Jeon Seon-gyu, the largest shareholder of Mico, and related parties hold an 18.45% stake, and after the spin-off, they will hold 18.45% stakes in both Mico A and Mico B.

At the time of the spin-off, subsidiaries and treasury stocks will be concentrated in Mico A. Then, Mico A will hold 2.48% of Mico B's shares through treasury stocks. When Mico A conducts a paid-in capital increase, Chairman Jeon and others will contribute their 18.45% stake in Mico B as a contribution in kind to Mico A and receive 18.45% of Mico A's shares (assuming a 1:1 ratio).

After the capital increase is completed, Chairman Jeon and others will secure a 36.9% stake in Mico A. Mico A will hold 20.93% of Mico B's shares including treasury stocks. Through this process, Chairman Jeon and others can strengthen their control over the company without additional capital input. Typically, when splitting into a holding company and a business company, the holding company tends to be relatively undervalued, which could further increase Chairman Jeon's control.

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