The 'Key' to Succession in Large Corporate Groups... Unlisted Companies to Watch

How Do Key Unlisted Companies Hold the Key to Group Succession?
Analysis of Core Unlisted Affiliates of CJ, Amore, SPC, Lotte, and SK

As CJ Group's CJ Olive Young share repurchase emerges as an issue in the business world and capital markets, interest is growing in the unlisted companies holding the key to the group's succession. Besides CJ Group, many other groups such as SK, Lotte, Amore, and SPC are preparing for succession and affiliate separation through core unlisted subsidiaries.

How Olive Young Became the Key to CJ's Succession

According to the investment banking (IB) industry on the 3rd, CJ Group recently signed a contract to repurchase shares of Olive Young from Glenwood Private Equity (PE). The share repurchase is expected to be conducted in the form of treasury stock acquisition. From CJ Group's perspective, this transaction, buying back shares after selling them to a private equity fund at a higher valuation, achieves multiple goals. It can increase the owner's share ratio through treasury stock cancellation and merger, receive market evaluation on Olive Young's corporate value, and avoid issues related to merger ratios.

Glenwood PE became the second-largest shareholder by purchasing 22.6% of Olive Young's shares in a pre-IPO (pre-listing equity investment) in 2021. As CJ Olive Young buys back half of the shares it sold to Glenwood PE, the market is raising the possibility of a merger with CJ Corporation. If these shares are canceled, the control of the fourth-generation owners, Lee Sun-ho, head of CJ CheilJedang, and Lee Kyung-hoo of CJ ENM, will increase. After canceling all treasury shares, Lee Sun-ho's shareholding would rise to 14.2%, about 3% higher than the current 11.04%. When Glenwood PE invested, Olive Young's corporate value was around KRW 1.8 trillion, but in this share sale, it was valued at KRW 3.5 trillion. The higher Olive Young's corporate value and the lower CJ Corporation's corporate value, the more advantageous the owners are in securing CJ Corporation shares at a favorable ratio.

Amore Group: Innisfree as the Biggest Variable in the Succession Battle Between Eldest and Second Daughters

In AmorePacific Group, where eldest daughter Seo Min-jung and second daughter Seo Ho-jung are both succession candidates, mergers among subsidiaries such as AmorePacific and Innisfree under the holding company AmoreG hold the key to the succession structure. Recently, Chairman Seo Kyung-bae of AmorePacific Group gifted shares to his second daughter Ho-jung, creating a competitive dynamic between the eldest and second daughters. Min-jung holds 2.55 million shares of AmoreG, while Ho-jung holds about 2.52 million shares, making their holdings close. The market is focused on the role that Min-jung's shares in Innisfree will play in the succession battle.

Min-jung holds 8.68% of Innisfree shares, a subsidiary of AmoreG. Previously, she held 18.18% but donated 9.5% to the Seo Kyung-bae Science Foundation. The foundation then sold this 9.5% back to Innisfree, which became treasury stock. If the treasury shares are canceled, Min-jung's stake will increase. If a merger between Innisfree and AmorePacific occurs, Min-jung will hold shares in AmorePacific. When AmoreG conducts a paid-in capital increase and Min-jung participates, she can contribute her AmorePacific shares as an in-kind contribution. If Min-jung contributes 100% of her AmorePacific shares to the holding company AmoreG, she can receive new shares of AmoreG of equivalent value. This effectively converts unlisted affiliate shares into top-level holding company shares. It is also a way to avoid gift tax of nearly 40%.

SPC Group Establishes Big Bite Company... Signal of Affiliate Separation Between Eldest and Second Sons

In SPC Group, the newly established company Big Bite Company, spun off from the holding company Paris Croissant, is attracting market attention. SPC Group, on the verge of inclusion in a large business group, is accelerating third-generation succession work. The market expects Chairman Heo Young-in to divide group management rights between eldest son Heo Jin-soo, president of Paris Croissant, and second son Heo Hee-soo, vice president. Heo Jin-soo is expected to inherit the core bakery businesses Paris Croissant and SPC Samlip, while Heo Hee-soo will inherit the foodservice businesses BR Korea and Sect Nine.

Big Bite Company, separated from Paris Croissant, is the company that took over Shake Shack's Korean business division. The dominant view in the industry is that Big Bite Company will soon be incorporated as a subsidiary of BR Korea, where Heo Hee-soo serves as Chief Strategy Officer. BR Korea is the only affiliate in the group that does not receive direct or indirect investment from Paris Croissant. The market interprets that SPC Group plans to place BR Korea under Heo Hee-soo's control during succession and affiliate separation, acquiring shares of some affiliates such as Big Bite Company and Sect Nine to incorporate them as subsidiaries.

Lotte Third Generation Shin Yu-yeol, Without Korean Affiliate Shares, Becomes CEO of Japanese Financial Investment Company

Shin Yu-yeol, eldest son of Lotte Group Chairman Shin Dong-bin and head of Lotte Holdings' Future Growth Office (executive director), resolved nationality and military service issues after turning 38 this year. Since he is exempt from military service under Korean law, it is expected he will take a leading role in domestic management and accelerate succession.

The market's main focus is on Shin's shareholding within the group. It is understood that Shin currently holds no significant shares in major listed or unlisted affiliates domestically. However, in July last year, Shin was appointed CEO of Lotte Financial in Japan. Lotte Financial holds 51% of Lotte Capital's shares. This company is mainly engaged in investment, fund management, and real estate development. Before Shin became CEO of Lotte Financial Japan, the CEO was Masamoto Kobayashi, known as "Lotte's treasurer," who served as CFO of Lotte Holdings.

Lotte Financial is also connected to another company where Shin serves as CEO, Lotte Strategic Investment (LSI). LSI is the largest shareholder of Lotte Financial. The governance structure flows from LSI → Lotte Financial → Lotte Capital. Under LSI, there are seven investment companies, and through these subsidiaries, LSI holds about 46.1% of Hotel Lotte, the effective holding company of Korean Lotte. The Japanese investment company led by Shin ultimately controls the Korean Lotte Group.

SK Group's Future Energy Company SK E&S Quietly Gains Attention

SK Group's succession scenario has drawn attention as Chairman Chey Tae-won’s three children have begun formal management training within the group. After Chairman Chey revealed in a foreign media interview that he has a succession plan in mind, the market cautiously speculates that a model separating ownership and management may emerge. The three children’s management capabilities are now being tested in fierce competition with professional managers.

Chairman Chey's eldest daughter Yoon Jung works as head of business development at SK Biopharm, and the second daughter Min-jung worked at SK Hynix until two years ago and recently founded an artificial intelligence (AI) medical startup. The eldest son In-geun works at SK E&S's North American subsidiary Passkey. Although SK Biopharm, SK Hynix, and SK On receive more attention, the unlisted affiliate SK E&S, where In-geun works, is worth noting.

SK E&S showed the highest profit growth rate among affiliates last year and is gaining attention as the group's new "cash cow." Credit rating agencies also view SK E&S as a strategically important subsidiary within SK Group, considering the potential support from the parent company SK Corporation. While SK Hynix and SK On are currently spotlighted affiliates, SK E&S is seen as a future business. It is a green portfolio company organically connecting renewable energy, clean hydrogen, low-carbon liquefied natural gas (LNG), and energy solutions. It is regarded as a key unlisted affiliate preparing for the carbon-zero era.

Particularly noteworthy is Passkey, a SK E&S subsidiary where In-geun works. Passkey is the U.S. entity where senior executives of SK Group's battery company SK On are stationed. Uncle Chey Jae-won, SK's senior vice chairman, concurrently serves as Passkey's board chairman and chief investment officer (CIO). Chey Young-chan, head of management support, is the CEO, and Park Jong-wook is the CFO. SK Group has assembled specialized personnel around Passkey to consolidate business capabilities.

Passkey is an investment holding company wholly owned by SK E&S Americas, SK E&S's U.S. subsidiary. After establishing Passkey, SK E&S reorganized its renewable energy and investment business units under Passkey. Passkey manages companies acquired or invested in by SK E&S. In-geun is gaining experience in energy-related businesses, the group's main revenue source, and acquiring global investment know-how here.

A financial investment industry insider said, "To see the future of the group, it is necessary to pay attention to quietly operating unlisted affiliates rather than listed companies. Although less information is publicly available than for listed affiliates, careful observation can reveal changes that will determine the group's future."

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