"Opposition to Merger Plan Hurting Minority Shareholders"... Controversy Over Dongwon Industry-Enter Merger

[Asia Economy Reporter Kwon Jae-hee] Dongwon Industries, a KOSPI-listed company, announced a merger with the unlisted company Dongwon Enterprises, sparking controversy over the merger ratio.

Minority shareholders and institutional investors claim that Dongwon Industries distorted the merger ratio to favor the major shareholder family, including Kim Nam-jung, Vice Chairman of Dongwon Group, while Dongwon Industries argues that the merger is aimed at improving management efficiency through simplification of the ownership structure.

According to the Financial Supervisory Service's electronic disclosure system on the 25th, Dongwon Industries decided to absorb Dongwon Enterprises and submitted a preliminary review application for a backdoor listing to the Korea Exchange on the 7th.

The controversy centers on the merger ratio. The merger ratio between Dongwon Industries and Dongwon Enterprises is 1 to 3.838553.

Applying this merger ratio, Dongwon Industries’ shareholder equity decreases by 4.5%, resulting in a loss of approximately 125 billion KRW, while the owner family’s equity increases by more than 5%, with expected gains exceeding 140 billion KRW. This evaluation values Dongwon Industries at about 900 billion KRW and Dongwon Enterprises at over 2 trillion KRW.

Some argue that Dongwon Industries’ equity value has been undervalued and calculated to favor Dongwon Enterprises. They claim this is to create a structure directly controlled by Kim Nam-jung, Vice Chairman of Dongwon Group, who will become the largest shareholder of Dongwon Industries after the merger. In fact, Kim’s stake in Dongwon Industries will be 48.4%, and Kim Jae-chul, Honorary Chairman of Dongwon Group, will hold 17.4%.

Choi Nam-gon, a researcher at Yuanta Securities, pointed out, "If Dongwon Industries remains relatively undervalued as it is now, Dongwon Industries’ shareholders will have to share the portion they originally should have had with Dongwon Enterprises’ shareholders. Since Dongwon Industries will change from an operating company to a business holding company after the merger, the valuation of the holding company is discounted, causing minority shareholders to suffer losses."

However, Dongwon Group drew a clear line, stating that the merger is solely to simplify the ownership structure and enhance management efficiency.

The company stated, "If the two companies merge, a holding company with substantial assets will be created, placing us in a favorable position for business expansion through mergers and acquisitions (M&A) in the future," and added, "The merger price was also calculated according to principles."

Meanwhile, if this merger process is completed, the existing holding company Dongwon Enterprises will be absorbed by Dongwon Industries, making Dongwon Industries the business holding company of Dongwon Group. Subsidiaries that were once grandchild companies, such as Starkist, the No. 1 tuna canning company in the U.S., and Dongwon Loex, will become subsidiaries. The CEOs will be Lee Myung-woo, President of Dongwon Industries, and Park Moon-seo, President of Dongwon Enterprises, respectively, operating under a dual CEO system for the business and holding divisions.

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