Value Partners: "Emart-Shinsegae Food Merger Benefits Only Controlling Shareholders"

Open Shareholder Letter Sent
Merger Price Undervalued... "Only One-Sixth of Appraised Value"

Value Partners Asset Management, a shareholder of Shinsegae Food, has publicly criticized the merger and delisting process between Emart and Shinsegae Food, arguing that the merger price was set in a way that infringes on the rights of minority shareholders.

On April 22, Value Partners announced that it had sent an open shareholder letter containing these points to the management and board of directors of Shinsegae Food on April 20. Value Partners stated, "While the government and financial authorities are strongly pushing for improvements in corporate governance and enhancement of shareholder value to resolve the so-called 'Korea Discount,' there are still repeated cases where unfair transactions in favor of controlling shareholders infringe on the property rights of ordinary shareholders in practice. This transaction is a case where a conflict of interest arises between controlling and minority shareholders because the shares of the majority and minority shareholders are not evaluated at the same value."

Currently, Chung Yongjin, Chairman of Shinsegae Group, holds a 28.85% stake in Emart, and Emart owns a 71.18% effective stake in Shinsegae Food. Value Partners argued that with this shareholding structure, if Shinsegae Food is merged at a price below its intrinsic value, the loss is transferred to minority shareholders while the gains accrue to the controlling shareholders.

Value Partners pointed out that the proposed merger price of 50,191 won per share for Shinsegae Food is significantly undervalued. As of the end of last year, Shinsegae Food's liquidation value was 94,692 won per share, but the merger price is about half that amount. This is not only well below the range of 176,080 to 309,854 won suggested by Hanul Accounting Corp., the advisor to Emart, but also significantly less than the lower end of the 128,787 to 191,035 won range provided by Sooni Accounting Corp., the advisor to Shinsegae Food itself. Value Partners criticized, "It is essentially no different from transferring the assets of minority shareholders to the controlling shareholders at a price that is less than one-sixth of the upper bound of the income value, 309,854 won."

Accordingly, Value Partners urged the company to immediately proceed with a share buyback and cancellation before the merger, until the current share price fully reflects the intrinsic value per share. In addition, they demanded that the MOM (majority of minority) procedure be applied at the general meeting of shareholders. The MOM system allows proposals (such as mergers and spin-offs) that involve conflicts of interest between controlling and minority shareholders to be approved only with a majority vote of minority shareholders, excluding the controlling shareholders. Furthermore, they called for full disclosure of all assumptions used in valuation, comparable companies, future cash flows, discount rates, and terminal value, in the interest of transparency.

Value Partners stated, "We are not asking for special treatment for minority shareholders of Shinsegae Food, but merely demanding that one share be valued equally for both controlling and minority shareholders. If, under the legal obligation of fiduciary duty, the board of directors hides behind formal legality and allows the intent of the revised Commercial Act to be undermined—resulting in the controlling shareholders effectively taking assets from minority shareholders—this would constitute a failure of the law and a loss of trust in the country."

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