[Wealth Succession] Korea Seonjae Expands Third-Generation Owner's Control Through Merger with 'Work Concentration' Company

Most Sales from Owner Family Company of Hanguk Seonjae
Low Merger Price of Hanguk Seonjae... Owner's Third Generation Control Increases

Lee Je-hoon, Chairman of Hanguk Seonjae.

KOSDAQ-listed company Hanguk Seonjae is set to absorb and merge with an owner family company it grew through ‘preferential business allocation.’ Once the merger is completed, the third generation of the owner family is expected to significantly increase their control.

According to the Financial Supervisory Service’s electronic disclosure system on the 26th, Hanguk Seonjae announced that it will absorb and merge with its affiliate company, ‘Geumje.’ The merger ratio between Hanguk Seonjae and Geumje is 1 to 77.14 shares. Shareholders holding one share of Geumje will receive 77.14 new shares of Hanguk Seonjae, and Geumje’s shares will be canceled.

Hanguk Seonjae is a wire manufacturing and processing company founded in 1974 by the late founder Chairman Lee Myung-ho. Its main products include steel materials, galvanized iron wire, and stainless steel wire. Its affiliates include Hanseon Engineering and Geumje. The current largest shareholder is Chairman Lee Je-hoon, the second generation of the founder.

Geumje is a freight forwarding company, with most of its sales generated from Hanguk Seonjae. Of Geumje’s 2.6 billion KRW sales last year, 2.5 billion KRW came from Hanguk Seonjae. Geumje has three employees, making it effectively a corporation receiving preferential business from Hanguk Seonjae.

Hanguk Seonjae valued Geumje’s corporate worth at 8.9 billion KRW. As an unlisted company, a weighted average method of asset value and earnings value was applied. As of the end of Q3 this year, most of Geumje’s assets consist of 1,370,054 shares (5.88%) of Hanguk Seonjae and 800,000 shares (4.71%) of Hanseon Engineering.

Hanguk Seonjae evaluated its own corporate value based on the standard market price. Under the Capital Markets Act, if a listed company’s standard market price is lower than its asset value, the merger price can be set based on the asset value. Hanguk Seonjae’s standard market price is 2,810 KRW, while its asset value is 7,533 KRW. Although the asset value is much higher than the standard market price, the standard market price was applied as the merger price.

The company stated, “We judged that the standard market price, calculated by multiple market participants, appropriately reflects the actual value of the company. Also, if the merger ratio were evaluated using asset value, which does not reflect business uncertainties and the operating performance of the investee company, it would be difficult to reasonably consider the interests of each merging company and their stakeholders from a balanced perspective. Therefore, we calculated the merger price based on the standard market price.”

When Hanguk Seonjae and Geumje merge, if Hanguk Seonjae’s value is low and Geumje’s value is high, Geumje’s shareholders can receive more Hanguk Seonjae shares. The largest shareholder of Geumje is Lee Yoo-jin, the child of Chairman Lee Je-hoon, holding 39.8%. The rest are Chairman Lee Je-hoon (30.2%) and Hanguk Seonjae (30.0%), among others.

Once this merger is completed, Lee Yoo-jin’s control over Hanguk Seonjae is expected to expand. Currently, Lee Yoo-jin holds no direct shares in Hanguk Seonjae and controls it indirectly through Geumje. Based on Lee’s stake in Geumje, it is estimated that she effectively holds about 2.34% of Hanguk Seonjae.

However, after this merger, Lee Yoo-jin will receive 1,257,431 shares (4.93%) of Hanguk Seonjae. Additionally, the Hanguk Seonjae shares previously held by Geumje will be incorporated as treasury stock, further increasing her effective control.

Regarding this, a Hanguk Seonjae representative stated, “There is nothing to say beyond what has been disclosed.”