Fair Trade Commission: "Samsung Welstory serves as a key funding channel for the Samsung family... contributed to the 'Cheil Industries-Samsung C&T' merger"

Samsung Group, which concentrated in-house catering on Wellstory, sanctioned for unfair support activities

In Q3 2015, 74.8% of Samsung C&T's operating profit came from Wellstory
Dividend expansion to appease shareholders after Cheil Industries-Samsung C&T merger
Funding needs met through Wellstory's profits

[Sejong=Asia Economy Reporter Joo Sang-don] The Fair Trade Commission judged that the profits Samsung Wellstory earned through internal transactions in group catering contributed to funding needed during the Cheil Industries-Samsung C&T merger process. Before Wellstory was spun off from Everland, the only stable profit-generating business among Everland's operations was effectively Wellstory, and since Wellstory's profits were generated solely from internal transactions, the Future Strategy Office saw the necessity to concentrate the catering volume of affiliated companies to increase Wellstory's profitability.

On the 24th, the Fair Trade Commission explained the background of unfair support while sanctioning Samsung Group for concentrating in-house catering on Wellstory as an unfair support act.

Wellstory is a 100% subsidiary of Samsung C&T, whose largest shareholder is Samsung Electronics Vice Chairman Lee Jae-yong. The origin of current Samsung C&T is Samsung Everland. On December 1, 2013, Everland acquired the fashion business division from the former Cheil Industries. When Samsung SDI absorbed the former Cheil Industries, which only had the electronic materials division left, on July 1, 2014, causing Cheil Industries to dissolve, Everland changed its corporate name to Cheil Industries on July 4 of the same year. Later, on September 4, 2015, Cheil Industries absorbed the former Samsung C&T, which was engaged in construction business, and changed its corporate name back to Samsung C&T.

According to the Fair Trade Commission, Everland is controlled by Vice Chairman Lee Jae-yong, who is at the top of Samsung Group's governance structure. Wellstory originally belonged to the FC (Food Culture) division, which engaged in catering and food distribution businesses. On December 1, 2013, Everland spun off the FC division responsible for professional catering and food distribution to establish Wellstory. As a subsidiary of Everland, Wellstory was exempted from regulations on private interest appropriation acts.

Based on internal catering transactions with affiliated companies, Wellstory recorded average annual sales of 1.1217 trillion KRW and operating profit of 95.7 billion KRW from 2013 to 2019. During the same period, the total average annual sales and operating profit of the top 11 competing group catering operators were only 2.6704 trillion KRW and 80.1 billion KRW, respectively.

Yook Sung-kwon, Director of the Corporate Group Division at the Fair Trade Commission, said, "Large-scale funds were required during the (Cheil Industries-Samsung C&T) merger process for treasury stock purchases (about 409 billion KRW), responding to shareholders exercising stock purchase rights against the merger (about 675.1 billion KRW), and implementing dividend expansion policies (2017?2019, averaging about 111.6 billion KRW) to appease former Samsung C&T shareholders' opposition after the merger." He emphasized, "The profits Wellstory obtained through internal transactions appear to have been allocated to Samsung C&T in the form of dividends and used to meet large-scale funding needs."

Wellstory's dividend payout ratio (dividend amount) rose from 99.02% (72.8 billion KRW) in 2015 to 114.56% (93 billion KRW) in 2017, then dropped to 16.92% (10 billion KRW) in 2019 after the Fair Trade Commission's on-site investigation in July 2018.

Director Yook said, "The total dividends Samsung C&T received from Wellstory from 2015 to 2019 amounted to 275.8 billion KRW, and Wellstory paid most of its net income (a total of 357.4 billion KRW) as dividends to Samsung C&T." He added, "Wellstory played a key cash cow role for the controlling family by actively distributing dividends based on stable profits earned through group catering internal transactions."

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