[News Terms] Behavioral Ants

Shinpoong Pharmaceutical Individual Shareholders Demand Treasury Stock Cancellation
Minority Shareholders Also 'Act' Following Activist Funds
Low Company Stake Makes It Difficult to Enforce Shareholder Proposals

[Asia Economy Reporter Han Seung-gon] Recently, as activist funds have intensified their shareholder actions against listed companies, small shareholders have also been banding together to make shareholder proposals. They are a kind of 'activist ants.' Under the Commercial Act, shareholders who hold 3% or more of voting shares or have held 1% or more for at least six months can exercise the right to make shareholder proposals.

About 700 small shareholders of pharmaceutical manufacturer Shinpung Pharmaceutical sent a shareholder proposal to the company on the 9th, demanding "the cancellation of treasury shares." Previously, Shinpung Pharmaceutical sold about 1.29 million treasury shares through a block deal for 215.4 billion KRW in 2020 to repay debt. In their proposal, the small shareholders stated, "The stock price plummeted due to the sale of treasury shares, causing infringement of small shareholders' property rights," and requested, "Please cancel treasury shares in the same amount (1.29 million shares) as the shares sold at that time." A block deal is a transaction where a seller holding a large number of shares finds a buyer in advance and trades the shares. It is conducted before the market opens or after it closes to avoid affecting the market.

[Image source=Yonhap News]

Meanwhile, the Ilshin Textile Shareholders' Coalition made a shareholder proposal to the company on December 21 last year. The proposals included △ public tender offer and cancellation of treasury shares worth 50 billion KRW at 170,000 KRW per share △ disclosure of the company's owned art collection list △ stock split to provide liquidity. Ultimately, on the 20th, Ilshin Textile presented shareholder return measures that, while not at the level of treasury share repurchase and cancellation demanded by the coalition, were acceptable to small shareholders. On that day, the company's stock price jumped about 11% in one day. The financial investment industry regards this as a successful case where the voices of the 'ants' prevailed in shareholder returns.

However, capital market experts predict that no matter how much small shareholders rally votes as 'activist ants,' it is not easy to win a vote battle at shareholder meetings. This is because many companies have major shareholders with high shareholding ratios, who are the counterparts to small shareholders, most of whom are long-term investors. Recently, SM Entertainment, targeted by Align Partners, had only about an 18% stake held by former chief producer Lee Soo-man, the largest shareholder.

The case of Ilshin Textile, where the ants' actions succeeded, is considered a special case. The company’s largest shareholder and related parties hold more than 50% of the shares. Despite this, the industry widely interprets the acceptance of small shareholders' proposals as a move to prevent outside directors from entering the board of directors. If external personnel are brought into the board, they could intervene in management.