"OCI is the Only Partner to Pay Inheritance Tax and Protect Management Rights"
OCI Chairman Also Needs a White Knight Due to Low Holding Company Shares
Industry Warns "OCI Faces Risk of Bukwang Pharm Precedent if Overly Involved"
The main reason Hanmi Pharmaceutical Group decided to integrate with OCI Group by selling its holding company shares was to secure funds for paying 540 billion KRW in inheritance tax. It is reported that Hanmi Pharmaceutical made the retention of CEO Lim Ju-hyun's management rights at the holding company Hanmi Science the top condition during the process of pursuing the share sale to raise funds. Regarding the fact that OCI is a specialty company in industrial materials chemicals with no connection to the pharmaceutical industry, an industry insider told on the 16th that the business sector of the acquiring company was not a major consideration.
Initially, Hanmi Pharmaceutical signed a contract to sell 11.8% of Hanmi Science shares to the private equity fund (PEF) operator La D?fense Partners for 320 billion KRW. However, La D?fense, whose major investor is MG Saemaeul Geumgo, failed to secure investment funds to purchase Hanmi Science shares due to last year's Saemaeul Geumgo bank run (massive deposit withdrawals), and Hanmi Pharmaceutical began searching again for a buyer through La D?fense and other advisory firms.
[Image source=Yonhap News]
La D?fense maintained a trust relationship with Hanmi Pharmaceutical to the extent that after the death of Chairman Lim Sung-ki, it recommended former Samsung Electronics Vice President Baek Hyung-tae as vice chairman to Hanmi Pharmaceutical. Although the share purchase fell through, La D?fense continued its advisory role in the share sale and reportedly introduced OCI to Hanmi Pharmaceutical during this process. Large corporations were never considered as potential buyers from the beginning. "We did not consider selling shares via block deals to PEFs or large corporations from the start because we believed that management rights would be lost within a few years, and Hanmi Pharmaceutical could not be protected," an industry insider said.
The background for Hanmi Pharmaceutical accepting OCI as the integration partner reportedly lies in the close friendship between Song Young-sook, Chairwoman of Hanmi Pharmaceutical Group, and Kim Kyung-ja, Chairwoman of the Songam Cultural Foundation and mother of Lee Woo-hyun, Chairman of OCI. After receiving OCI's proposal, Chairwoman Song approved the integration, describing OCI as a "decent and trustworthy family." It is known that Chairwoman Song and Chairwoman Kim were close and trusted each other through joint cultural and social contribution activities. Chairwoman Song supports the domestic art photography scene to the extent of operating the only photography museum in Korea, and Chairman Lee being an amateur photographer also contributed to building trust.
Additionally, OCI's side considered that Chairman Lee's stake in OCI Holdings is only 6.55%, but when combined with the shares of two paternal uncles, it approaches 15%, which was also a factor in deciding to integrate through partial share exchange with Hanmi Pharmaceutical. A business insider said, "Both Chairman Lee and CEO Lim needed a white knight to support their weak control, which led to the deal's success." Due to this background, both companies refer to this share transaction as an "integration" rather than the usual business term "merger."
Meanwhile, Hanmi Pharmaceutical and OCI announced, "We will leap forward as a global pharmaceutical company through the integration of the two groups," but the pharmaceutical industry has mixed expectations and concerns about this first-ever 'heterogeneous combination.' While the overall domestic business community views the pharmaceutical and bio industries as promising future sectors and is increasing investment, there is uncertainty whether the expected synergy in the specialized field of pharmaceuticals will materialize.
Jung Yoon-taek, CEO of the Pharmaceutical Industry Strategy Institute, said, "The key will be OCI's willingness and ability to invest from the perspective of economies of scale," adding, "If aggressive investments such as pouring massive capital into new drug development to expand pipelines or pursuing global mergers and acquisitions (M&A) are simultaneously made, synergy will definitely occur." However, some in the pharmaceutical industry believe that OCI must guarantee Hanmi Pharmaceutical's management autonomy as stated in the integration announcement and avoid premature interference to maintain Hanmi Pharmaceutical's new drug research and development (R&D) capabilities.
OCI entered the pharmaceutical and bio industry by acquiring Bukwang Pharmaceutical in 2022, but Bukwang Pharmaceutical has not shown clear results, recording losses after the acquisition. Inside Bukwang Pharmaceutical, there has been backlash claiming that OCI, lacking sufficient understanding of the pharmaceutical industry, weakened the company's competitiveness by downsizing the sales network, reorganizing the Bukwang Pharmaceutical organization, and pushing into health functional foods.
Along with this, there are concerns in the pharmaceutical industry that other pharmaceutical companies, which have yet to proceed with next-generation succession, may repeatedly sell shares to heterogeneous companies in a manner similar to Hanmi Pharmaceutical in the future. Except for conglomerate-affiliated companies, even the top domestic pharmaceutical companies have annual sales of only about 1 to 2 trillion KRW, so their scale is not large. In such circumstances, if stock prices rise due to active R&D and overseas expansion like Hanmi Pharmaceutical, the financial burden on the owner family during future inheritance and gifting could become unmanageable.
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