Orion Bets 550 Billion Won on Bio Company, Stock Price Plummets

Nearly 18% Plunge Compared to Previous Trading Day
Concerns Over 10% Operating Profit Decline with Consolidated Accounting Treatment

Orion's news of acquiring a stake in LegoChem Bio caused the stock prices of both companies to plummet. Concerns arose that a food company, which had focused on the confectionery business, might negatively impact its performance by investing thousands of billions of won in the bio business. Securities firms forecasted that if LegoChem Bio's performance is accounted for on a consolidated basis with Orion, Orion's operating profit could decrease by more than 10%.

According to the Korea Exchange, Orion closed at 96,600 won on the 16th, down 17.51% from the previous trading day. LegoChem Bio, which showed an early rise in the session, also ended the day at 52,200 won, down 4.74% from the previous day.

The news that Orion would become the largest shareholder by purchasing a stake in LegoChem Bio for 550 billion won acted as a negative factor for the stock price. Orion announced the day before that it would acquire a 25% stake in the pharmaceutical company LegoChem Bio, becoming the largest shareholder.

Founded in 2005, LegoChem Bio is a domestic bio venture with research and development capabilities in antibody-drug conjugate (ADC) technology, known as a next-generation anticancer agent, and synthetic new drug fields.

However, it takes time for a bio company to achieve results in the research stage that directly translate into operating profit. It is an industry where it is difficult to generate profits in the short term.

Kiwoom Securities analyst Park Sang-jun predicted in a report on the same day that if Orion accounts for LegoChem Bio's profits and losses on a consolidated basis in the future, Orion's operating profit could be revised downward by more than 10%, and the visibility of performance could significantly decrease.

On the other hand, if the equity method accounting is applied, where only the stake proportion is recorded in the financials, the operating profit estimate would not decrease, and the controlling shareholder net income on a consolidated basis is expected to be revised downward by about 2-3%.

Analyst Park said, "Due to the expansion of bio business investment by a confectionery company, the investment points related to the performance stability held by food and beverage companies may be diluted, and doubts about synergy effects from investing in different industries may increase. Since the existing investors' investment points may conflict with the direction of this new equity investment, volatility in stock valuation could increase during the process of shareholder composition changes."

There was also an opinion that this is a model case of a major shareholder selling shares in a domestic bio company.

Seok Geun-hee, a researcher at Korea Investment & Securities, said, "Although the decrease in major management's stake and the minimal premium compared to the market price may be perceived negatively by the market, the fact that the largest shareholder changes to a company with high cash-generating ability limits the possibility of value dilution through capital increases, making it somewhat attractive."

Researcher Seo further explained that the reduction of major shareholder stakes through acquisitions by large corporations like Orion can be a way to increase corporate value.