Has Celltrion, Having Surpassed the 80% Mark to Merger, Cleared the Final Hurdle?

Approval of Merger Proposal with Celltrion Healthcare at Celltrion's Extraordinary General Meeting
Celltrion Stock Buyback Price Set at 150,813 KRW
Exercise of Stock Buyback Rights Should Consider Capital Gains Tax and Opportunity Costs

Incheon Songdo Celltrion Plant 2 Overview. / Incheon - Photo by Hyunmin Kim kimhyun81@

Celltrion shareholders approved the merger with Celltrion Healthcare at the extraordinary general meeting. After the approval, Seo Jung-jin, Chairman of Celltrion, stated, "Even if the stock purchase right claim exceeds the limit of 1 trillion won, we will enforce it unconditionally." This is interpreted as an intention to reduce uncertainties related to the merger. The stock price movement until the next month's 13th, when shareholders who opposed the merger can exercise their stock purchase rights, is expected to determine whether the merger will be completed.

According to the Financial Supervisory Service on the 24th, Celltrion held a board meeting the previous day and resolved to issue corporate bonds worth 550 billion won. This measure is to respond to the exercise of stock purchase rights by shareholders opposing the merger. As of the end of the first half of this year on a separate basis, Celltrion holds 566.6 billion won in cash and cash equivalents. By issuing corporate bonds to raise funds, the company has the capacity to respond even if the scale of stock purchase rights exercise exceeds 1 trillion won. Since the agenda was approved at the extraordinary general meeting, the merger depends on the management's will. Chairman Seo expressed a strong intention to complete the merger at the Celltrion general meeting after both companies' merger contracts were approved, saying, "The uncertainty of the merger is gone."

Seo Jung-jin, Chairman of Celltrion Group, is giving a greeting ahead of the 2023 Celltrion Extraordinary General Meeting of Shareholders held on the morning of the 23rd at Songdo Convensia in Incheon. Photo by Celltrion [Image source=Yonhap News]

The financial investment industry predicts that if the current stock price level is maintained or slightly rises, the scale of stock purchase rights exercise will not be as large as expected. Celltrion closed at 140,600 won the previous day. Although news of the merger agenda approval at the extraordinary general meeting was delivered, the stock price fell 1.13% compared to the previous trading day. If the stock purchase rights are exercised, shares can be sold at 158,130 won, which is about 6.8% higher than the current stock price. A financial investment industry official said, "The payment will be received within one month after the stock purchase rights exercise period ends," adding, "Considering the capital gains tax burden, individual shareholders will have significant concerns."

Exercising stock purchase rights to sell shares to the company is considered an over-the-counter transaction. Capital gains tax of 22% must be paid on the capital gains, which is the transfer price minus acquisition cost and transfer expenses. Additionally, a securities transaction tax of 0.35% of the transfer price must be paid. Seogeunhee, a researcher at Samsung Securities, explained, "The smaller the gap between the stock purchase rights exercise price and the stock price, the higher the possibility of the merger," adding, "The stock price movement until the 13th of next month is important."

The problem arises when the stock price falls below the current level, widening the gap between the stock purchase rights exercise price and the stock price. Even considering opportunity costs, if the gain from exercising the stock purchase rights is greater than selling on the market, the exercise scale may increase. If the gap exceeds a certain level, the National Pension Service, which holds 7.43% of Celltrion shares, can exercise the rights. The National Pension Service is expected to deliberate until just before the exercise period ends to maximize returns.

In 2014, when Samsung Heavy Industries and Samsung Engineering attempted a merger, stock purchase rights were exercised. The exercise amount by opposing shareholders, including the National Pension Service, exceeded 1.6 trillion won, causing the merger to fail. In 2016, when Mirae Asset Securities and Mirae Asset Daewoo merged, stock purchase rights were not exercised. On the last day to exercise rights, the stock prices of Mirae Asset Securities and Mirae Asset Daewoo were about 2-3% lower than the exercise price.

Once the merger-related uncertainty that is holding back the stock price disappears, whether performance improves is likely to determine the stock price direction. Celltrion received new drug sales approval from the U.S. Food and Drug Administration (FDA) for Zympentra (ZYMFENTRA), the subcutaneous (SC) formulation of the antibody biosimilar Remsima. A Celltrion official explained, "The approval of Zympentra signifies securing the first milestone for the integrated Celltrion to achieve 12 trillion won in sales by 2030," adding, "After the launch of Zympentra, annual sales of over 600 billion won and sales of 3 trillion won within three years are also possible."

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