[Exclusive] Targeting K-Beauty Powerhouse Kolmar... US Activist Dalton Declares 'Management Participation'

Dalton Secures 5.67% Stake and Changes Holding Purpose
Kolmar Holdings Shareholders' Meeting This Year: Board Appointment Showdown
Pressure Mounts for Share Buybacks and Increased Dividends

US activist fund Dalton Investment (Dalton) has officially announced its participation in the management rights of Kolmar Holdings, the holding company of Korean cosmetics manufacturing and development company (ODM) Kolmar Korea. Following a recent shareholder proposal recommending an outside director, Dalton has changed its stockholding purpose to 'management influence' and made clear its intention to participate in management.

Last month, Dalton established its Korean subsidiary 'Dalton Korea' and appointed analyst Seongyun Lim, known as a key figure targeting the 'Korea discount,' as its representative. With the establishment of the corporation, Dalton officially entered the Korean market and selected Kolmar Holdings as its first investment company.

According to the Financial Supervisory Service's electronic disclosure system on the 17th, Dalton increased its stake in Kolmar Holdings from 5.02% to 5.69% by purchasing an additional 230,000 shares on the 14th. Dalton had steadily acquired Kolmar Holdings shares through on-market purchases over two months since October last year, securing a 5% stake, and expanded its shareholding through additional purchases earlier this month.

When Dalton purchased shares in Kolmar Holdings in November last year, it stated its holding purpose as 'simple investment.' At that time, Dalton explained, "If situations related to the company's business execution arise, we plan to exercise influence considering the interests of shareholders and stakeholders."

However, with this recent purchase, Dalton changed its holding purpose to 'management influence.' Dalton stated, "If matters related to the company's business execution arise in the future, we plan to exercise influence within the scope permitted by relevant laws and regulations to align with the company's management objectives, considering the interests of shareholders and stakeholders."

According to Article 154, Paragraph 1 of the Capital Markets Act, Dalton intends to exercise influence over the overall management of Kolmar Holdings, including ▲appointment, dismissal, or suspension of directors and auditors ▲amendments to the articles of incorporation related to the board of directors or other company bodies ▲changes in the company's capital ▲mergers, splits, and split mergers ▲comprehensive stock exchanges and transfers ▲acquisition and transfer of all business operations ▲disposal of all assets ▲dissolution of the company, etc.

Holding purposes are divided into three categories: simple investment, general investment, and management influence. Simple investment aims to realize profits through stock price appreciation, general investment involves active shareholder activities such as demanding increased dividends without participating in management rights, and management influence means direct participation in company management, which can also be interpreted as a signal of a potential future attempt to secure management rights.

Dalton's change of holding purpose from simple investment to management influence, rather than general investment, indicates its intention to actively engage in the company's major policies and executive appointments.

Dalton plans to attempt entry into the board of directors at Kolmar Holdings' general shareholders' meeting on the 31st. Earlier this month, Dalton sent a letter to Kolmar Holdings recommending Seongyun Lim, co-CEO of Dalton, as an outside director and included this agenda item in the shareholders' meeting. An outside director does not work full-time at the company but holds responsibilities and authority as a board member to oversee decision-making. Lim holds an MBA from the University of Chicago and serves as co-CEO of Dalton Korea alongside Ki-seok Song, former head of Merrill Lynch Korea Research. He also serves as a partner portfolio manager and senior analyst at Dalton.

Dalton is an activist fund that invests long-term in undervalued companies and raises corporate value through active shareholder participation. As an analyst, Lim led investments in Korea and Asia and advocated that to resolve the Korea discount (undervaluation of the Korean stock market), share buybacks and dividend increases are necessary. In 2019, he sent a letter to Hyundai Home Shopping criticizing its insufficient shareholder return policy, demanding the return of $365 million to shareholders.

Amid the recent global K-beauty boom, Kolmar Holdings' stock price has been significantly undervalued. Kolmar Holdings has major subsidiaries including Kolmar Korea (26.3% stake) and health functional food ODM Kolmar BNH (44.63%). As demand for cosmetics and health/functional foods increased domestically and internationally, Kolmar Holdings recorded consolidated sales of 678.8 billion KRW last year, a 6.5% increase year-on-year. Operating profit rose 140% to 40.6 billion KRW, and net profit surged 546% to 39.1 billion KRW. Retained earnings stood at approximately 356.5 billion KRW. However, Kolmar Holdings' stock price declined 14% over the past year.

In June last year, Kolmar Holdings strengthened cash dividends and announced shareholder return policies including share buybacks and cancellations. It plans to implement quarterly dividends in addition to year-end dividends and aims for a shareholder return ratio of over 50% based on separate financial statements. This year, it also plans to pay quarterly dividends. Due to this, the stock price briefly surged to 12,140 KRW intraday but did not last. On the 15th, the closing price was 7,140 KRW, about 70% of last year's peak.

The market views the possibility of a management rights dispute at Kolmar Holdings as low. The largest shareholder and special related parties hold 48.45% of shares. The largest shareholder is Vice Chairman Sanghyun Yoon of Kolmar Holdings, holding 31.75%. Following are President Yewon Yoon of Kolmar BNH (7.45%), Chairman Donghan Yoon of Kolmar Korea (5.59%), Hyunsoo Lee (3.17%), and Vice Chairman Yoon's eldest son Donghee Yoon (0.16%).

A Kolmar Holdings official said, "The shareholder proposal led to the agenda for appointing an outside director being submitted to the board, and this appears to be related to the change in stockholding purpose. When appointing directors, we believe the board will listen positively to various shareholder opinions aimed at enhancing corporate and shareholder value."

Meanwhile, with the passage of the amended Commercial Act expanding the 'duty of loyalty of directors' to shareholders, the listed business community is expressing concerns that activist funds' management rights attacks may intensify. Companies fear that if stock prices fall due to new technology investments, acquisitions, or mergers, they may face a series of lawsuits. Activist funds' management interference could become more severe.