[Into the Stocks] Meritz 3 Companies, United They Survived

Meritz Financial Group, Subsidiary Delisting
Fire and Securities Fully Incorporated as Wholly Owned Subsidiaries
Major Shareholder Stake Declines After Stock Swap
Industry: "Message Prioritizes Shareholder Interests"

[Asia Economy Reporter Kwon Jae-hee] Meritz Financial Group has made a decision rarely seen in the history of the Korean stock market. It announced the delisting of its major listed subsidiaries and their incorporation as wholly owned subsidiaries. This move is contrary to the trend in the Korean stock market, where major holding companies frequently engage in split and duplicate listings. As a result, the stock prices of the three Meritz companies surged simultaneously.

According to the Korea Exchange on the 24th, Meritz Financial Group's stock price rose to the daily price limit (29.93%) during trading the previous day. Meritz Financial Group also closed at the upper limit on the 22nd. On the previous day, Meritz Securities and Meritz Fire & Marine Insurance rose by up to 12.27% and 18.53%, respectively. Meritz Securities and Meritz Fire & Marine Insurance also hit the daily limit on the 22nd, immediately after the announcement of their incorporation as subsidiaries.

The simultaneous surge in the stock prices of the three Meritz companies followed Meritz Financial Group's announcement on the 21st that it would incorporate its major listed subsidiaries, Meritz Fire & Marine Insurance and Meritz Securities, as wholly owned subsidiaries and pursue a comprehensive stock swap with the shareholders of the two companies.

Meritz Financial Group stated, "This is to implement a stable and sustainable shareholder return policy," adding, "We will use at least 50% of net income for dividends, share buybacks, and cancellations for at least the next three years."

This announcement by Meritz Financial Group is a rare decision in the Korean stock market. In Korea, it is common for holding companies to split their subsidiaries and list them separately. Major shareholders can increase their control over multiple affiliates with only a small stake in the holding company, and duplicate listings increase the group's market capitalization and facilitate fundraising. In other words, this structure strengthens the controlling family's dominance.

However, Meritz's decision is the opposite, as it actually lowers the major shareholder's (owner's) stake. If the comprehensive stock swap for 100% subsidiary status of Meritz Fire & Marine Insurance and Meritz Securities is carried out, Chairman Cho Jung-ho's stake in Meritz Financial Group will decrease from the mid-70% range to about 47%. Experts have evaluated this as "a clear message that Meritz Financial Group prioritizes shareholder interests."

Brokerages are also raising their target prices. Samsung Securities raised Meritz Fire & Marine Insurance's target price from 45,000 won to 47,000 won and Meritz Securities' from 4,900 won to 5,900 won. Shinhan Investment Corp. also raised Meritz Financial Group's target price from 29,000 won to 38,000 won.

Jung Min-ki, a researcher at Samsung Securities, praised the move, saying, "Amid recent controversies over the decline in parent company value due to the spin-off of core business units and the double counting of corporate value due to simultaneous listings of parent and subsidiaries, the decision to merge three listed companies into one is contrary to recent capital market trends. This aligns the interests of minority shareholders and major shareholders."

Meanwhile, as the stock prices of Meritz Financial Group and its major subsidiaries surged simultaneously, Chairman Cho Jung-ho's stock holdings also increased significantly. The value of his stock holdings rose by about 830 billion won, propelling him from 9th to 6th place in the ranking of domestic stock billionaires, surpassing SK Group Chairman Chey Tae-won, Hyundai Motor Group Chairman Chung Eui-sun, and Kakao founder Kim Beom-su.