Merger Within Celltrion Group Gains Momentum: "Eliminating Accounting Scandal Controversy and Leaping Globally"

Merger Ratio 1:0.449262
First Merger Expected to Complete Within the Year
Can Risks Like 'Internal Transactions' Be Overcome?

The merger within the Celltrion group, which had not progressed for three years, has now been set in motion. By the end of the year, Celltrion will absorb and merge Celltrion Healthcare. Celltrion’s subsidiary, Celltrion Pharm, will initially remain as a subsidiary of the integrated corporation, so the merger will proceed first as a two-company merger rather than the previously anticipated three-company merger.

On the 17th, Celltrion Group announced through a public disclosure that it has entered the formal merger process following a board resolution on the merger of Celltrion and Celltrion Healthcare. The group stated, "As the first step, we will merge the bio-affiliated companies within the group, Celltrion and Celltrion Healthcare," adding, "After strengthening the business of Celltrion Pharm, we plan to pursue a second merger between the integrated Celltrion and Celltrion Pharm to enhance bio-chemical synergy and lay the foundation to establish ourselves as a global comprehensive biotechnology company."

The merger between the two companies will be conducted in the form of Celltrion absorbing Celltrion Healthcare. The merger price is set at 148,853 KRW for Celltrion and 66,874 KRW for Celltrion Healthcare, with Celltrion Healthcare’s existing shareholders receiving 0.449262 shares of Celltrion common stock for each share of Celltrion Healthcare common stock they hold.

The shareholders’ meeting to approve the merger is scheduled for October 23. Following this, there will be a period until November 13 for exercising the right to request stock purchase, with the merger date set for December 28, aiming to complete the merger by the end of the year. The right to request stock purchase is a legally guaranteed right under the Commercial Act that allows shareholders opposing the merger to request the Celltrion Group to buy their shares at a certain price. The purchase price is set at 150,813 KRW for Celltrion and 67,251 KRW for Celltrion Healthcare.

Earlier, last month, Celltrion Group reportedly selected Mirae Asset Securities as the lead manager for the merger, reactivating the merger plan first outlined by Chairman Seo Jung-jin at the JP Morgan Healthcare Conference (JPMHC) in January 2020, where he stated, "If shareholders want, I will merge Celltrion, Celltrion Healthcare, and Celltrion Pharm as early as next year." Although the pace seemed to slow after Chairman Seo stepped down from day-to-day management and became honorary chairman in March 2021, the merger resurfaced when he made a sudden return in March this year. At his comeback press conference, Chairman Seo said the preparations for the three-company merger were "almost complete," adding, "The key is financial market stability." He also stated, "If the financial market stabilizes and it is deemed appropriate to proceed with the merger, we will present a milestone and complete the merger within four months."

The reason the merger of affiliates is important to Celltrion Group lies in the group’s unique division of labor structure. The three companies have a division of labor where Celltrion develops and manufactures biopharmaceuticals, Celltrion Healthcare handles overseas distribution, and Celltrion Pharm manages domestic distribution. Celltrion Pharm also produces synthetic pharmaceuticals (chemical drugs). Since production and distribution are separated and there is no direct equity relationship between Celltrion and Celltrion Healthcare, the sales performance of Celltrion supplying pharmaceuticals to Celltrion Healthcare and Celltrion Healthcare selling drugs overseas are separately recorded as distinct revenues. This is also why Celltrion discloses the signing of sales and supply contracts with Celltrion Healthcare.

Due to this, Celltrion Group has been embroiled in controversies over ‘internal transactions’ and ‘accounting fraud.’ When Celltrion transfers drugs to Celltrion Healthcare, the transaction is recorded as revenue for Celltrion. However, from Celltrion Healthcare’s perspective, inventory assets that must be sold arise at that moment. While this would be just an internal transfer within the same company, since they are separate companies, it is recorded as separate revenue, which is close to internal transactions. Additionally, there have been claims that the value of inventory assets was inflated by not reflecting the decline in value in the financial statements.

Last year, the Financial Services Commission’s Securities and Futures Commission judged that although Celltrion Group violated accounting standards by overstatement and failure to recognize impairment losses, there was no intentional wrongdoing, thus settling the matter for the time being. However, as the division of labor structure remains, the controversy continues.

Once the merger is completed, these controversies will be resolved at once. With the launch of the ‘integrated Celltrion,’ the development and production of synthetic and biopharmaceuticals, as well as domestic and overseas sales, will all be conducted within one company, establishing the company as a global comprehensive pharmaceutical and bio company.

Seo Jung-jin, Chairman of Celltrion Group, is speaking at an online press conference held in March.
[Photo by Celltrion]

Celltrion Group also stated, "We plan to accelerate our leap to becoming a global big pharma starting with this merger," citing three major expected effects. First, the entire business cycle from development to sales will be unified, enabling cost competitiveness improvements and securing large-scale investment resources for new drug and new modality development. Second, with strengthened cost competitiveness allowing aggressive pricing strategies, it will be a major turning point for expanding sales regions and market share. Lastly, through the integration of the two companies, the transaction structure will be simplified, making financial metrics such as profitability clearer, thereby enhancing transparency and increasing investor confidence.

Celltrion Group plans to also focus on enhancing shareholder value through increased sales and profits after the merger. In particular, ▲cost savings from the merger ▲sales growth from securing cost competitiveness ▲sales and profit expansion from pipeline growth and new drug launches are expected, which will increase resources available for shareholder returns. Accordingly, Celltrion Group intends to steadily increase shareholder value in the mid to long term by expanding the dividend payout ratio based on cash dividends.

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