[In-Depth Review] Ownership Structure Changes Such as Splits Must Be Accompanied by Shareholder Returns

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Since 2020, major listed companies have frequently disclosed changes related to ownership structure, but concerns about shareholder rights infringement still persist.

In the past, human divisions related to the transition to holding companies were actively carried out mainly by major conglomerates to strengthen the controlling shareholder's power. During this process, there was controversy over shareholder rights infringement caused by the "treasury stock magic," which restored voting rights to treasury shares. Currently, concerns about shareholder rights infringement are also emerging in the process of ownership structure changes through simple physical divisions carried out for corporate management purposes.

Not all physical divisions can be seen as infringing on shareholder rights, but it cannot be assumed that simple physical divisions, which must inevitably be carried out, do not infringe on shareholder rights. Therefore, in relation to divisions (simple physical divisions) among ownership structure changes of listed companies, appropriate shareholder returns should be simultaneously fulfilled from the perspective of protecting shareholder rights. In particular, regarding divisions (especially simple physical divisions) among ownership structure changes of listed companies, shareholder return measures such as granting "share purchase rights" and "partial cancellation of treasury shares" are also considered necessary from the perspective of protecting shareholder rights.

First, under the current Commercial Act, in relation to ownership structure changes (mergers and divisions), the "share purchase right" is granted only to shareholders opposing the merger agenda at the general meeting of shareholders to secure stock liquidity for existing shareholders of the merged company. However, in reality, in division agendas, especially in recent simple physical divisions, the newly established company from the division of the core business division becomes an unlisted company or goes through processes such as an initial public offering after a certain period, increasing concerns about infringement of existing shareholders' rights.

Financial authorities are also reportedly considering "shareholder protection measures related to physical divisions" (March 7) to resolve these issues. Therefore, granting "share purchase rights" is deemed necessary from the perspective of protecting shareholder rights due to divisions (especially physical divisions). Even if there is no change in corporate value or stock liquidity before and after the division, considering the actual realization of concerns about shareholder rights infringement, granting "share purchase rights" to shareholders opposing the division agenda is considered the minimum necessary requirement to mitigate concerns about shareholder rights infringement.

Second, even if physical divisions are inevitably carried out in situations necessary for corporate management such as large-scale facility investments and financial structure improvements, considering the persistent concerns about shareholder rights infringement, shareholder returns through a certain level of treasury stock cancellation are necessary.

In other words, rather than short-term shareholder returns such as additional dividend increases that increase the company's financial burden, canceling a certain level of treasury shares held by the company to reduce the number of issued shares is considered positive for long-term valuation improvement. If there are no treasury shares held, acquiring a certain level of treasury shares for the purpose of cancellation can also be an alternative.

Ahn Sang-hee, Head of Responsible Investment Center, Korea ESG Institute

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