HanmiScience, Disappearing Management Premium... Small Shareholders' Losses Snowball

Over the past five years, the average control premium ratio in mergers and acquisitions (M&A) within the pharmaceutical and biotechnology industry has been found to reach 240%. In this context, it is considered unusual that Hanmi Science did not secure any control premium during its integration process with OCI Holdings.

According to Hanul Accounting Corporation on the 19th, a comprehensive survey of major pharmaceutical and biotech company stock transfers exceeding 10 billion KRW disclosed in the Financial Supervisory Service's electronic system from February 2020 over five years revealed that the average control premium rate was 239.2%.

The M&A with the highest control premium rate was in 2022 when Green Cross Holdings acquired BioCentric, a U.S.-based contract development and manufacturing organization specializing in cell and gene therapies. At that time, Green Cross paid a control premium cost of a staggering 1418.23%.

In June 2021, Daewon Pharmaceutical's acquisition of Geukdong H Pharm involved a control premium rate of 362.4%, and in December of the same year, CJ CheilJedang paid a 381.6% control premium when acquiring microbial information analysis company ChunLab.

Analysis of stock transfer data from 48 listed companies disclosed over the past year also showed that acquiring companies paid an average control premium cost of 59%.

Despite these cases, Hanmi Pharmaceutical Group did not receive any control premium during the corporate merger process with OCI. The issuance price of new shares in Hanmi Science's capital increase was 37,300 KRW, and the sale price of shares by Chairman Song Young-sook was 37,000 KRW, which is not significantly different from the closing price of 37,300 KRW on the 11th of last month.

If the integration proceeds as planned by both companies, OCI Holdings will become the largest shareholder by acquiring a 27% stake in Hanmi Science without paying any control premium.

In the past, OCI paid a 64.2% control premium when acquiring Bukwang Pharmaceutical in February 2022. However, acquiring one of Korea's leading pharmaceutical companies with sales of 1.5 trillion KRW without any control premium is unprecedented.

Industry insiders commented, "This unusual transaction occurred because the needs of the mother and daughter to secure inheritance tax funds and OCI Chairman Lee Woo-hyun's desire to strengthen group governance coincided," adding, "Ultimately, the losers are institutional investors such as the National Pension Service and minority shareholders."

Furthermore, Hanmi Science, which will lose its holding company status due to the merger and acquisition, will only have its corporate value recognized based on its 40% stake in Hanmi Pharmaceutical and its current healthcare business, raising concerns that the direct losses suffered by good-faith shareholders could snowball.

The integration agreement between Hanmi Pharmaceutical Group and OCI Holdings includes ▲ the sale of 7,440,674 shares of Hanmi Science by Chairman Song Young-sook and the Gahyeon Cultural Foundation ▲ OCI Holdings' participation in a paid-in capital increase of 240 billion KRW (6,434,316 shares) in Hanmi Science ▲ and participation in OCI Holdings' capital increase (2,291,532 shares) following the contribution in kind of 6,776,305 shares of Hanmi Science by Chairman Song and President Lim Joo-hyun.

In response, Hanmi Pharmaceutical Presidents Lim Jong-yoon and Lim Jong-hoon filed an injunction lawsuit requesting a prohibition on Hanmi Science's third-party allotment capital increase targeting OCI Holdings.

The brothers' side stated, "The decision to merge the two groups was made for personal gain, such as the mother and daughter's inheritance tax payment."

President Lim Jong-yoon's side argued, "There were buyers willing to purchase Hanmi Science shares at more than twice the price, but the control premium and President Lim Joo-hyun's status as a major OCI shareholder were swapped," adding, "The rights of institutions and over 40,000 shareholders were also ignored."

Because of this, there is growing demand in the market for transparent disclosure of board discussions on important decisions such as third-party allotment capital increases.

Recently, Kim So-young, Vice Chairman of the Financial Services Commission, stated at the 'M&A System Improvement Meeting' that "Since mergers and acquisitions significantly affect corporate governance and share value, the contents of board discussions deciding on integration will be disclosed, and the appropriateness of merger prices will be reviewed by external institutions under the Capital Market Act Enforcement Decree, which is scheduled for legislative notice."

Currently, the capital market strictly regulates third-party allotment capital increases conducted at prices below market value.

According to precedents related to violations of the 'Act on the Aggravated Punishment of Specific Economic Crimes,' "When new shares are issued to a third party at a price significantly lower than market value, the company is considered to have suffered damages calculated by multiplying the difference between the fair issue price and the actual issue price by the number of shares issued," it is stipulated.

Furthermore, after the act occurs, it is necessary to determine whether the issuance of new shares at a price significantly lower than the fair value constitutes breach of trust in business.

An industry insider said, "The reasons for third-party allotment capital increases and the procedures during board discussions must be transparently disclosed to enhance trust in the capital market," adding, "As the government’s corporate value-up program is about to be announced, it is necessary to represent the interests of the majority of good-faith minority shareholders rather than major shareholders."

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