Hyundai Department Store's Holding Company Conversion Fails... "No Plans for Re-promotion" (Comprehensive Report 2)

Division of Investment and Business Units, Promotion of Holding Company System Transition
Owner's Strengthening of Management Rights and Concerns Over Shareholder Value Damage Halted

Jung Ji-sun, Chairman of Hyundai Department Store Group.

The attempt to transition Hyundai Department Store, the flagship affiliate of Hyundai Department Store Group, into a holding company system through a spin-off of personnel failed. It is evaluated that concerns over the dilution of shareholder value due to the strengthening of major shareholders' control, including Chairman Chung Ji-sun of Hyundai Department Store Group, and the separation of valuable subsidiaries hindered the process. Hyundai Department Store stated, "We humbly accept the result" and firmly declared that there will be no further attempts to transition to a holding company system through a spin-off of personnel.

On the 10th, Hyundai Department Store announced that at the extraordinary general meeting of shareholders held at the Hyundai Department Store Group Talent Development Center in Gangdong-gu, Seoul, the 'Approval of the Spin-off Plan' fell short of the special resolution quorum by a narrow margin and was ultimately rejected. Among the shareholders who participated in the vote at the meeting, 64.9% voted in favor, and 35.1% opposed. For the agenda to pass, two-thirds (66.7%) of the attending shareholders needed to approve, but it fell short by about 1.8 percentage points.

After the general meeting, Hyundai Department Store issued a statement saying, "We humbly accept the result and have decided to halt the transition to a holding company system that had been pursued." It added, "We sincerely apologize that the spin-off plan and shareholder return policy, which were carefully promoted considering market concerns, did not gain sufficient consensus," emphasizing, "There are no plans to reattempt the transition to a holding company system through a spin-off of personnel in the future."

In September last year, Hyundai Department Store announced a plan to transition to a holding company system by spinning off its flagship affiliates, Hyundai Department Store and Hyundai Green Food, respectively. The plan centers on establishing a new holding company, Hyundai Department Store Holdings, and making Hyundai Department Store the surviving company of the spin-off. Hyundai Department Store Holdings controls Hanmu Shopping and Hyundai Department Store, while Hyundai Department Store controls Zinus and the duty-free shops.

However, concerns arose in the market that while the spin-off would strengthen the major shareholder's control, it could infringe on the interests of minority shareholders. Chairman Chung's stake in Hyundai Department Store is 17.09%. If the spin-off were approved, he would additionally hold 17.09% of Hyundai Department Store Holdings, and assuming a 1:1 stock exchange ratio, his holdings in the holding company could increase to 34.18% during the subsequent capital contribution process. Hyundai Department Store Holdings could increase its stake in Hyundai Department Store to 23.7% by combining the 17.09% stake contributed by Chairman Chung and 6.61% treasury shares. Although the 6.61% treasury shares of Hyundai Department Store have no voting rights, once contributed to the holding company, voting rights over the department store would be acquired. Due to this, ahead of the extraordinary general meeting, Hyundai Department Store introduced shareholder return policies such as treasury share cancellation and dividend expansion based on the spin-off to appease shareholder dissatisfaction. However, the persuasion ultimately failed.

Voices expressing concerns about shareholder value damage due to the separation of Hanmu Shopping also increased ahead of the extraordinary general meeting. Hanmu Shopping has served as a 'cash cow,' generating annual operating profits of around 100 billion KRW through six stores, including Trade Center Branch, Mokdong Branch, and Kintex Branch. Some were also skeptical about plans to expand synergy with Zinus, which would remain a subsidiary of the surviving company Hyundai Department Store.

Hyundai Department Store planned to focus on strengthening business synergy with Hyundai Department Store Duty-Free, which it wholly owns, and Zinus, the number one mattress company on Amazon acquired last year for 774.7 billion KRW, as Hanmu Shopping would be separated from the subsidiaries. They revealed a blueprint to increase the domestic sales ratio of Zinus, which is focusing on overseas sales, through joint product development with living and interior affiliates and consideration of developing a premium lineup tailored to department store customers' standards, but failed to sway opposing shareholders. Hanmu Shopping, having separated due to the Fair Trade Act requiring holding companies' grandchild companies to acquire 100% stakes in domestic companies, planned to actively pursue mergers and acquisitions (M&A) to secure new growth engines.

Meanwhile, Hyundai Green Food, which resolved the spin-off plan through its board of directors last September, had its 'Approval of the Spin-off Plan' finally passed at the extraordinary general meeting on the same day. Accordingly, Hyundai Green Food will continue to pursue the transition to a holding company system through a spin-off of personnel.

Hyundai Department Store Apgujeong Main Branch exterior view (Photo by Hyundai Department Store).