[Their Own Wealth Succession] Harim① The Key Company for Harim's 14 Trillion KRW Annual Sales Gift is 'Olpoom'

Chairman Kim Hong-guk's Eldest Son Jun-young Receives 100% Stake in Olpum in 2012
100 Billion Won-Scale Gift Tax Funded by Olpum Stock Cancellation

[Asia Economy Reporter Hyungsoo Park] "I believe there is no such thing as a dirt spoon. I want to instill a positive mindset and a spirit of challenge in some young people who are cynical about reality." Harim Group Chairman Kim Hong-guk explained the meaning of the 'Napoleon Bicorne Hat,' which he won at an auction in 2014, at the opening ceremony of the Napoleon Gallery in the annex of Pangyo Venture Valley, Seongnam-si, Gyeonggi-do, in March 2017.

Chairman Kim is an entrepreneur who started with 10 chicks given by his maternal grandmother and built a corporate group with total assets exceeding 15 trillion won. He opened the Napoleon Bicorne Hat, which he purchased for 1,884,000 euros, to the public to share 'Napoleon's spirit of challenge' with the younger generation and businesspeople.

Four years after opening the Napoleon Gallery, the Fair Trade Commission imposed a fine on Harim Group for unfairly supporting Olpum, a company wholly owned by Kim’s eldest son, Kim Jun-young. Chairman Kim, who emphasized the spirit of challenge among young people by saying there is no dirt spoon, thus personally demonstrated that there is indeed a golden spoon.

Starting from Hwangdong Farm in Iksan, Jeollabuk-do in 1978, Harim Group has grown into a large conglomerate with over 80 unlisted companies and five listed companies including Harim Holdings, Seonjin, Farmsco, Harim, and Pan Ocean. It has completed vertical integration that can manage the food value chain from grain (shipping) - feed - livestock - slaughtering and processing - food manufacturing - distribution and sales. It ranks first domestically in chicken processing, branded pork, feed manufacturing and sales, and dry bulk cargo volume. Its main affiliates include Harim, the 'No.1 chicken brand power' company, NS Shopping, the 'No.1 food home shopping,' and Pan Ocean, which operates shipping and grain businesses.

In 2012, Chairman Kim gifted 100% of Olpum’s shares to Jun-young. At that time, a gift tax of about 10 billion won was imposed. From then on, Harim Group affiliates began supporting Olpum. Five pig farms including Farmsco and Porkland purchased animal medicines from Olpum from January 2012 to February 2017. During the same period, feed companies such as Seonjin and Jeil Feed changed their method of purchasing functional feed additives from individual purchases to integrated purchases through Olpum.

Up to this point, it could be seen as a normal management method to increase efficiency and bargaining power. However, the Fair Trade Commission judged that only Olpum benefited. Olpum, which had been manufacturing animal medicines for poultry, began producing generic medicines for pigs around 2012. Generic medicines are difficult to differentiate from competitors’ products in terms of price or quality, and Olpum lacked sufficient time to prove its business capabilities in the pig animal medicine sector.

As Harim Group affiliates decided to purchase animal medicines through Olpum, Olpum established a growth foundation. Affiliates replaced the products they had been using with Olpum’s products. The proportion of Olpum medicines used by affiliates in 2016 doubled compared to 2012. Farmsco, during the integrated purchase period, found through its own price survey that it was buying at prices higher than direct purchases from external pig farmers’ dealerships but did not change the purchasing method. In February 2017, based on its own price survey results, it demanded Olpum reduce prices and compensate for losses. When negotiations did not proceed smoothly, it signed direct contracts with dealerships a month later.

Affiliates manufacturing compound feed also began purchasing feed additives through Olpum instead of directly from manufacturers. In this process, Olpum secured about a 3% middle margin on purchase amounts. With support from Harim Group affiliates, Olpum’s operating profit increased from 10.3 billion won in 2013 to 17.7 billion won in 2016. The Fair Trade Commission imposed fines of 3.8 billion won on eight companies including Harim Holdings and Farmsco, and 1.1 billion won on Olpum.

On December 16, 2015, Olpum repurchased and canceled 62,500 common shares at 160,000 won per share by resolution of an extraordinary general meeting of shareholders. Jun-young sold his Olpum shares to Olpum and received 10 billion won in cash. This was to prepare funds to pay the tax incurred from receiving 100% of Olpum shares as a gift from Chairman Kim. Jun-young maintained 100% ownership of Olpum shares.

Olpum also owns 100% of Korea Biotech, which holds 16.69% of Harim Holdings shares. Olpum itself holds 5.78% of Harim Holdings shares. Through Olpum, Jun-young secured 22.47% of Harim Holdings shares, which is more than Chairman Kim’s 21.1% stake.

Harim Holdings recorded sales of 13.9392 trillion won, operating profit of 948.7 billion won, and net profit of 557.6 billion won on a consolidated basis last year. Before Harim Holdings began its full-scale growth, Jun-young quickly received the Olpum shares at the top of the governance structure and reorganized the governance, making him effectively the largest shareholder of Harim Holdings.