No Blood, No Tears... Kolmar Siblings Battle for Control of Health Functional Food Business [Second-Generation Management Begins] ③

Eldest Son Yoon Sanghyun, Vice Chairman of Kolmar Holdings, Moves to Replace Younger Sister Yoon Yewon as CEO of Kolmar BNH
Activist Fund Joins Kolmar Holdings Board
Sharp Action Taken Amid Declining Health Functional Food Performance and Stock Price

The second-generation heirs of Kolmar Group have entered into a management dispute over the health functional food business. Kolmar Group’s founder, Chairman Yoon Donghan, had long designated his eldest son, Vice Chairman Yoon Sanghyun, as his successor, completing the transfer of management control. Yoon Sanghyun’s younger sister, Yoon Yewon, who is also Chairman Yoon’s daughter, has been running Kolmar BNH, a health functional food company, continuing a sibling-led management structure. However, tensions have been escalating as the eldest son attempts to remove his sister from her CEO position.

According to the Financial Supervisory Service’s electronic disclosure system on May 15, Kolmar Holdings submitted a petition to the Daejeon District Court on May 2, requesting approval to convene an extraordinary general meeting of shareholders for Kolmar BNH. Kolmar Holdings is the largest shareholder, holding a 44.64% stake in Kolmar BNH.

Eldest son of Kolmar Group, Yoon Sanghyun, Vice Chairman of Kolmar Holdings (left), and younger sister Yoon Yewon, CEO of Kolmar BNH

The agenda for the extraordinary shareholders’ meeting is to newly appoint Yoon Sanghyun, Vice Chairman and CEO of Kolmar Holdings, and Lee Seunghwa, former Vice President of CJ CheilJedang, as inside directors. Kolmar BNH currently has five registered directors, with CEO Yoon Yewon and Chief Strategy Officer Cho Youngjoo serving as inside directors. According to the company’s articles of incorporation, at least three directors must be appointed, with outside directors comprising at least one-quarter of the total. Since Kolmar BNH has had only two inside directors so far, there is speculation that, once Yoon Sanghyun joins the board, he may move to dismiss CEO Yoon and return the company to a professional management system.

Former Vice President Lee Seunghwa is known for overseeing new business investments at major CJ Group affiliates. After working for seven years at consulting firm Bain & Company, he joined CJ Group in 2014 and worked at CJ Freshway, CJ CGV, and CJ CheilJedang.

Kolmar Holdings: "Yoon Yewon’s Management Failure"… Eldest Son Takes Action

Kolmar Holdings has cited CEO Yoon’s management failure as the justification for the current dispute over management control. Kolmar Holdings claims that since Yoon Yewon took the helm of Kolmar BNH in 2020, both performance and corporate value have declined.

Kolmar BNH originated as Sun Biotech, a public-private joint venture established in 2004 by Chairman Yoon Donghan and the Korea Atomic Energy Research Institute. In 2011, it acquired and merged with food company Korea Foodipharm, changing its name to Kolmar BNH. In 2014, it merged with Mirae Asset No.2 Special Purpose Acquisition Company and was listed on the KOSDAQ market. Chairman Yoon had previously entrusted the management of Kolmar BNH to professional managers. CEO Jung Hwayoung, who founded Korea Foodipharm and merged it with Sun Biotech, led Kolmar BNH for about ten years until 2022.

Yoon Yewon joined Korea Kolmar in 2001, serving as Executive Director of the Marketing Strategy Division, Executive Vice President of Planning and Management at Kolmar BNH, and CEO of HNG. She was appointed CEO of Kolmar BNH in January 2020, initially sharing the role with former CEO Jung before becoming sole CEO last year.

Kolmar BNH develops and manufactures health functional foods on an ODM basis and cosmetic ingredients, with approximately 60% of total sales coming from health functional foods. When Yoon Yewon became CEO in 2020, the company’s sales were KRW 606.9 billion, but after declining in the following years, recovered to KRW 616.5 billion last year. During this period, operating profit shrank from KRW 109.2 billion to KRW 24.6 billion. Although demand for health functional foods increased during the COVID-19 pandemic, profitability fell sharply after the pandemic ended due to sluggish domestic demand and intensified competition in the health functional food ODM market.

In response, Kolmar BNH turned to overseas markets, expanding into China, Russia, the United States, Malaysia, and other countries through its largest client, Atomy, but growth has been limited. The company’s export volume stagnated, from KRW 94 billion in 2020 to KRW 89.3 billion in 2023, and KRW 108.4 billion last year. In particular, Yantai Kolmar, a joint venture with Atomy, and Jiangsu Kolmar, which serves local Chinese clients, saw even greater declines due to customer attrition. In the fourth quarter of last year, sales in China were KRW 17 billion, a decrease of about 31% compared to KRW 24.7 billion in the same period of the previous year.

Meanwhile, competitor Novarex has rapidly increased its overseas sales. Its exports, which stood at KRW 18.5 billion in 2021, rose to KRW 91 billion last year. Supplying products for global health functional food company GNC’s China market and securing new clients in China have driven this improvement. This year’s expected exports are in the KRW 100 billion range. Reflecting this optimism, Novarex’s share price has risen by about 17% over the past year and surged by around 60% so far this year.

In contrast, Kolmar BNH’s stock price, which exceeded KRW 70,000 in 2021, has fallen to the KRW 10,000 range. A Kolmar Holdings official commented, “Given the performance of competitors, it is disappointing to blame only market conditions. After much deliberation, we concluded that this situation could no longer be overlooked.”

"Legal Action" from the Younger Sister… What Is Her Countermove?

Kolmar BNH maintains that it is being treated unfairly. The company attributes its temporary underperformance to increased costs from investing in its third factory in Sejong, and questions the timing of a management takeover just as a turnaround is expected. Kolmar BNH has two dedicated factories in Sejong for producing Hemohim, and three factories in Eumseong County for manufacturing solid and tablet-type health functional foods. The third Sejong factory, which began operations last year, can produce KRW 200 billion worth of health functional foods annually.

Due to the completion of the third Sejong factory, Kolmar BNH’s selling and administrative expenses have increased by KRW 10 billion each year. These expenses rose from KRW 29 billion in 2020 to KRW 41.9 billion in 2022, KRW 50.7 billion in 2023, and are expected to reach KRW 60.4 billion in 2024. The company states that increased labor costs and higher depreciation expenses from the new factory have driven the rise in total SG&A expenses. Increased spending on subway advertising and group promotions also contributed, with advertising expenses rising by about KRW 600 million year-on-year to KRW 3.4 billion last year.

On May 12, Kolmar BNH issued a statement saying, “A demand for a CEO replacement at a time when we are overcoming structural issues and entering a turnaround period is premature,” adding, “We will respond in accordance with due process.” The company also warned that it would not hesitate to take legal action, including defamation claims, regarding the allegations of management failure.

However, if a vote is held at the extraordinary shareholders’ meeting, it will likely be difficult for Kolmar BNH to block Kolmar Holdings’ attempt to replace the CEO. Korea Kolmar Holdings holds a 44.63% stake in Kolmar BNH. CEO Yoon Yewon is the second-largest shareholder with a 7.78% stake. This is followed by Korea Atomic Energy Research Institute (6.05%), Chairman Yoon Donghan (1.11%), children Lee Minseok (0.01%), and Lee Youngseok (0.01%). Minority shareholders are also strongly demanding a rise in the share price, making it highly likely they will side with Vice Chairman Yoon, who is advocating for increased corporate value.

As a result, Kolmar BNH terminated a trust contract worth KRW 10 billion on this day to acquire treasury shares. CEO Yoon’s side is expected to appease minority shareholders by canceling the 821,970 treasury shares acquired through this trust contract. CEO Yoon emphasized, “Maximizing corporate and shareholder value is our top priority, and we are considering various response measures,” adding, “Any discussion regarding the CEO replacement should be approached cautiously, based on substantive validity.”

The Father Steps In to Mediate… Will the Sibling Conflict Escalate?

Kolmar Group began as a cosmetics and pharmaceutical OEM founded in 1990 by Chairman Yoon Donghan, formerly the youngest vice president at Daewoong Pharmaceutical, and later expanded into the health functional food OEM business. In 2018, the group entered the pharmaceutical market by acquiring HK Inno.N (formerly CJ Healthcare) from CJ Group. Between 2018 and 2020, Chairman Yoon transferred 31.75% of Kolmar Holdings shares to Vice Chairman Yoon Sanghyun. The following year, he also gifted shares to CEO Yoon Yewon (7.21%) and his son-in-law (3%).

Chairman Yoon also transferred a 6.36% stake in Kolmar BNH to CEO Yoon around the same time. CEO Yoon has increased her stake in Kolmar BNH through open-market purchases during periods of share price decline while leading the company.

It is reported that Chairman Yoon attempted to mediate the conflict before the petition to approve the extraordinary shareholders’ meeting was filed with the court. However, he was ultimately unable to prevent the management dispute between his children.

Nevertheless, most observers believe the Kolmar BNH management dispute is unlikely to spread to the entire group. At Kolmar Holdings’ regular shareholders’ meeting in March, a representative from US activist fund Dalton Investments (which holds a 5.69% stake) was appointed as an outside non-executive director and joined the board. Since Dalton is responsible for overseeing Kolmar Holdings’ decision-making, it appears that the fund has also agreed to the current management dispute.