LX Group Meets Independent Management Criteria... Approved for Family Separation from LG
Fair Trade Commission Recommends Family Separation Policy... Internal Transactions Monitored for 3 Years
Secures Top 40 Position in Business After Independence... Pursues Acquisitions Including MagnaChip
[Asia Economy Sejong=Reporter Lee Junhyung] The Fair Trade Commission (FTC) has recognized the familial separation between LG Group and LX Group. The FTC intends to encourage familial separation for large corporations that meet the criteria for independent management recognition. This is because familial separation is believed to clarify the ownership and governance structure of large corporations and disperse economic power concentrated in a single company.
On the 23rd, the FTC announced that 12 affiliates of LX Group, including LX Holdings, met the standards for independent management recognition from LG Group and thus recognized the familial separation. Previously, LX Group applied for affiliate separation from LG Group to the FTC on the 3rd of last month, one year after becoming independent from LG Group in May of last year. An FTC official stated, “LX Group has established an independent management system by changing the affiliate names from LG to LX or using separate brands,” adding, “They met all the requirements for recognizing independent familial management, so familial separation was acknowledged.”
Shareholding Requirements Met
Specifically, LG Group and LX Group met the shareholding ratio requirements. According to the FTC, LG Group holds shares in four listed LX Group affiliates, including LX Holdings and LX Semicon. LG Group’s shareholding ratios are below 3%: LX Holdings (2.52%), LX Semicon (0.0%), LX International (0.05%), and LX Hausys (0.01%). Similarly, LX Group’s holdings in LG Group affiliates are below 3% for listed companies and below 15% for unlisted companies, thus not violating shareholding ratio requirements.
The FTC also confirmed that there are no overlapping executives, debt guarantees, or fund loans between LG Group and LX Group. There have been no cases where the FTC imposed corrective measures or fines due to unfair support or private interests exploitation by the controlling family in transactions between LG Group and LX Group.
The FTC plans to encourage familial separation for large corporations that meet the independent management recognition criteria. Familial separation clarifies ownership and governance structures for large corporations connected through complex investment chains. It also allows large corporations to focus their capabilities on competitive core businesses and disperses economic power concentrated in a single company.
However, the FTC will monitor whether LG Group and LX Group continue to meet the independent management requirements for three years. According to the Enforcement Decree of the Fair Trade Act, if a company fails to meet the independent management recognition criteria within three years after familial separation, the FTC can revoke the familial separation recognition. The FTC plans to continuously monitor unfair internal transactions between LG Group and LX Group to verify independent management recognition.
LG and LX to Implement Follow-up Measures
The FTC also disclosed the follow-up action plans submitted by LG Group and LX Group. It was pointed out that the transaction ratios between LX Pantos and LX Semicon and LG Group affiliates were relatively high compared to the industry average, at 58.6% and 24.2% respectively as of last year. Accordingly, the follow-up measures by LG Group and LX Group focus on reducing the proportion of internal transactions between group companies.
First, LG Electronics and LG Chem will fully introduce a competitive bidding system for maritime transport transactions, opening logistics work opportunities to small and medium-sized enterprises. LX Pantos and LX Semicon are increasing external clients and overseas sales and entering new businesses to reduce the proportion of internal transactions.
LG Group will also establish an internal transaction committee centered on outside directors. The committee will apply review standards equivalent to those for transactions regulated against private interest exploitation for transactions with LX Group affiliates. LX Group plans to set up an ESG committee centered on outside directors to operate at a level similar to LG Group.
Since July last year, LG Group and LX Group have been implementing the “Voluntary Compliance Standards for Opening Logistics Work.” Both sides intend to faithfully implement key aspects of the voluntary compliance standards, such as expanding competitive bidding and prohibiting discriminatory treatment of bidding participants.
"Focusing on Securing Growth Engines"
Meanwhile, after becoming independent from LG Group last year, LX Group has risen to become a group ranked around 40th in the business world. LX Group’s asset size increased by about 24% from 8.093 trillion KRW at the end of 2020 to 10.0374 trillion KRW at the end of last year. During the same period, total sales of all affiliates rose approximately 42%, from 16.0248 trillion KRW to 22.8099 trillion KRW.
They are also aggressively pursuing mergers and acquisitions (M&A) to diversify their business, reduce dependence on LG Group, and cultivate future growth engines. The semiconductor business, personally led by Chairman Koo Bon-joon, is a representative example. LX Semicon recently submitted a letter of intent to acquire MagnaChip, a system semiconductor company, to the U.S. JP Morgan, the lead sales agent. Additionally, LX International is reviewing the acquisition of a nickel mine in Indonesia.
An LX Holdings official said, “With the completion of affiliate separation, LX Group has established a fully independent management system,” adding, “We will focus on business diversification and securing new growth engines to leap forward as a group achieving sustainable growth.”
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