[Wealth Succession] Codes Combine① Chairman Kim Boseon Transfers Shares to Son's Company as Stock Price Falls

Cotton Club Changes Major Shareholder to Ko & Com
Stock Price Drops from 180,000 Won to 1,600 Won, Transferred to Son

Capture of the Codes Combine homepage.

The largest shareholder of fashion apparel company Codes Combine has changed from Kim Boseon, chairman of Cotton Club, to her son Kim Sanghyun, director of Co&Com. It is analyzed that Kim Boseon transferred the shares to her son at a low point as the stock price of Codes Combine, which once rose to second place in the KOSDAQ market capitalization rankings under the ‘sold-out stock’ theme, continued to decline.

According to the Financial Supervisory Service’s electronic disclosure on the 29th, Cotton Club, the former largest shareholder of Codes Combine, transferred 19 million shares (50.21%) of Codes Combine to Co&Com through an off-hours trading method on the 22nd. The transaction amount was 1,694 KRW per share, totaling 32.2 billion KRW.

The transaction price was the closing price on the 22nd. Despite holding a majority stake in Codes Combine’s total shares as the largest shareholder, the shares were traded at market price without any premium. The current stock price is at a historic low since the COVID-19 shock in March 2020. The company stated, “This is an off-market transaction between related parties, and there is no substantial change in management rights.”

Co&Com is a company wholly owned by Kim Sanghyun, son of Kim Boseon, chairman of Cotton Club. Kim is listed as an inside director of both Cotton Club and Co&Com. At 31 years old this year, Kim has been working at Co&Com since 2017. Co&Com operates the innerwear business using the trademark rights of Codes Combine.

Previously, in 2015, Cotton Club was selected as the acquirer when Codes Combine entered court receivership and became the largest shareholder. Cotton Club specializes in manufacturing and selling underwear and owns its own brand, ‘COTTON CLUB.’ At the time of acquiring Codes Combine, the company had total assets of 69.4 billion KRW and total liabilities of 31.6 billion KRW.

At that time, Cotton Club acquired 34.22 million shares (90.4%) of Codes Combine through a third-party allotment paid-in capital increase for a total of 17.1 billion KRW at 500 KRW per share. Since Codes Combine was under court receivership, shares could be acquired at face value.

After Cotton Club’s acquisition, Codes Combine completed rehabilitation procedures in January 2015 and maintained its listing. Once trading resumed, Codes Combine’s stock price surged. This was not due to improved fundamentals but because Cotton Club held over 90% of the shares, significantly reducing the number of shares available for trading. The ‘sold-out stock’ theme was created, and the stock price showed an abnormal surge.

At that time, the stock price, which was 509 KRW when trading was suspended, soared to the 180,000 KRW range. Codes Combine’s market capitalization, which was about 25.8 billion KRW before rehabilitation, inflated to the 6 trillion KRW range, surpassing Kakao and ranking second in the KOSDAQ market capitalization. In response to this unprecedented situation, the exchange introduced regulatory measures to curb the abnormal surge of sold-out stocks, but Codes Combine’s frenzy did not easily subside.

During this period, Cotton Club sold about 30% of its Codes Combine shares on the market. It disposed of shares immediately after the one-year lock-up period following the capital increase ended. Cotton Club cashed out about 98 billion KRW at this time. Calculated by purchase price, shares bought for 5.7 billion KRW were sold at over 1600% higher prices. With this large profit, Cotton Club began expanding its business.

On the other hand, after Cotton Club secured huge profits, Codes Combine’s stock price declined. As more shares were released into the market, the stock price returned to its original state. Currently, Codes Combine’s market capitalization has shrunk to around 60 billion KRW.

As Codes Combine’s stock price declined, it is interpreted that Chairman Kim Boseon transferred the shares to her son. In fact, Cotton Club had valued Codes Combine’s shares at 1,790 KRW per share on its books as of the end of last year but transferred them to her son at a lower price.