[Why&Next] Another Setback... "Stingy Dividend" Sinsung Tongsang's Voluntary Delisting Challenge

Final Stake After Second Tender Offer: 94.55%
Ruling Party Moves to Push for Stronger Commercial Act Amendments
Burden Grows for Sinsung Tongsang, Which Paid Dividends Only Once in 10 Years
Sinsung Tongsang May Seek to Acquire Additional 0.45% Stake
Share Price Expected to Rise Further if On-Market Purchases Begin
Likelihood of Comprehensive Stock Swap Remains Low

Sinsung Tongsang, the operator of the clothing brand 'Topten (TOPTEN10)', has failed in its plan to voluntarily delist through a public tender offer this year. This is the second time this has happened, following last year. Since the COVID-19 pandemic, there has been a surge in minority shareholders, leading to increasing pressure to enhance shareholder value, such as expanding dividends. In addition, with the full implementation of the revised Commercial Act passed by the National Assembly earlier this month approaching, Sinsung Tongsang attempted to expedite the delisting. However, the company failed to secure the remaining 0.45% stake in this public tender offer.

Screenshot of the clothing brand 'TOPTEN10' website.

Given that Sinsung Tongsang has previously faced criticism in the stock market for "dividend tunneling" (channeling affiliate dividends to the owner family), it is expected that the company will pursue an additional public tender offer or purchase shares on the open market to meet the requirements for voluntary delisting. If the delisting succeeds, it is anticipated that Sinsung Tongsang CEO and Chairman Yeom Tae-soon's only son, Executive Director Yeom Sangwon, will expand dividends from the now-unlisted company to secure stable succession funds.

According to the electronic disclosure system of the Financial Supervisory Service on the 15th, Sinsung Tongsang's largest shareholder, Ganaan, and the second-largest shareholder, Asian Fashion, secured 15,348,498 shares during the 31-day public tender offer conducted from June 9 to July 9. Both Ganaan and Asian Fashion are family companies of Chairman Yeom Tae-soon.

Minority Shareholders Oppose Tender Offer... Short by 0.45% Stake

Sinsung Tongsang had planned to purchase all 23,178,102 shares at 4,100 won per share in this public tender offer. However, only 66.22% of the target quantity was secured, resulting in the final stake held by Sinsung Tongsang's largest shareholders and related parties reaching just 94.55%. In order to voluntarily delist, a company must secure 95% of its total issued shares. Due to the shortfall of 0.45%, immediate delisting has become difficult.

This failed tender offer is attributed to the opposition of minority shareholders. Some minority shareholders refused to participate, expressing dissatisfaction with the tender offer price. Previously, in July last year, Sinsung Tongsang also attempted a voluntary delisting through a public tender offer, but individual investors expressed dissatisfaction with the low offer price (2,300 won), resulting in only 83.87% of shares being secured in the first tender offer.

Sinsung Tongsang proposed a price of 4,100 won for this tender offer, which is about 78% higher than the first offer. However, this was still lower than the price at which Ganaan, the largest shareholder, purchased shares in the over-the-counter market from Chairman Yeom’s children, Yeom Hyeyoung, Yeom Hyegun, and Yeom Hyemin (4,920 won), leading to continued dissatisfaction among minority shareholders.

Why Did Sinsung Tongsang Choose Voluntary Delisting?

Sinsung Tongsang has long faced criticism for its "stingy dividends." Over the past decade, the company paid dividends only once, with the 2022 (July 2022?June 2023) year-end dividend amounting to just 50 won per share. The total dividend payout was 7.2 billion won. Although the SPA brand 'Topten' achieved record growth during the economic downturn, recording nearly 1 trillion won (970 billion won) in sales last year, the company maintained a no-dividend policy.

In contrast, Ganaan, Sinsung Tongsang's largest shareholder, has consistently paid dividends. Ganaan, an OEM bag manufacturer, paid 3 billion won in dividends for the 2020 fiscal year (September 1, 2019?August 31, 2020), 2 billion won the following year, 3.9 billion won in 2022, and 30 billion won in 2023. Ganaan is the largest shareholder, holding 82.43% of the shares through Executive Director Yeom Sangwon, with Chairman Yeom Tae-soon (10%) and another family company, Asian Fashion (7.57%), holding the remaining shares. This means that most of Ganaan's substantial dividends went to Executive Director Yeom and Chairman Yeom.

Asian Fashion, Sinsung Tongsang’s second-largest shareholder, is 53% owned by Chairman Yeom Tae-soon and 46.5% by Ganaan, and has also maintained its dividend policy. As a corporation with a June fiscal year-end, Asian Fashion paid 19.8 billion won in dividends from July 2023 to June 2024, and about 10 billion won the previous year. Asian Fashion operates the brands 'Polham', 'Polham Kids', and 'Project M'.

For these reasons, individual investors have, in recent years, called for Sinsung Tongsang to expand dividends, in line with the government's strengthened value-up policy. However, Sinsung Tongsang responded by attempting a voluntary delisting through a first tender offer last year, and again this year by seeking to secure additional shares through another tender offer.

Sinsung Tongsang: Additional Tender Offer vs. On-Market Purchases

Moreover, with the revised Commercial Act, which significantly strengthens shareholder rights, having passed the National Assembly’s plenary session this month, the burden on listed companies has increased. This lends weight to expectations that Sinsung Tongsang will seek to purchase the remaining shares. The amended law includes provisions such as the directors’ duty of loyalty to shareholders, mandatory electronic general meetings, and the "3% rule," which limits the combined voting rights of the largest shareholder and related parties to 3% when appointing audit committee members. The ruling Democratic Party is also pushing for even stronger amendments, including mandatory cumulative voting and expanding the separate election of audit committee members.

Storefront of Topten Jeju Yeonbuk Branch. Provided by Sinsung Tongsang.

Since Sinsung Tongsang only needs to secure an additional 0.45% stake to complete the voluntary delisting, it is likely to either purchase shares directly on the market or proceed with a third public tender offer.

There is a prevailing view that the "comprehensive stock swap" method will be difficult to pursue, as financial authorities may intervene. A comprehensive stock swap would involve Ganaan, Sinsung Tongsang's largest shareholder, converting the company into a wholly owned subsidiary by exchanging the shares for either stock or cash. As of the closing price on the 14th, Sinsung Tongsang’s share price was 4,140 won, higher than the second tender offer price of 4,100 won.A Sinsung Tongsang official said, "It has not been decided whether we will proceed with a third public tender offer or acquire additional shares on the market."

If Sinsung Tongsang is delisted, it will become a fully family-owned company. Chairman Yeom, now 72 years old, established a succession plan early on, appointing his son, Executive Director Yeom Sangwon, as his successor. Executive Director Yeom serves as planning team leader and director at Ganaan, and recently became head of the Topten and HR divisions at Sinsung Tongsang, having been promoted to executive director. He controls Sinsung Tongsang through Ganaan. It has been confirmed that Chairman Yeom established this shareholding structure in 2011, when Executive Director Yeom was 19 years old.

Chairman Yeom’s three daughters, Yeom Hyeyoung (5.3%), Yeom Hyegun (5.3%), and Yeom Hyemin (5.3%), each hold equal stakes in Sinsung Tongsang. The last time Chairman Yeom gifted shares to his daughters was on February 13 last year, giving each a 2% stake (about 280,000 shares).

However, in the case of Asian Fashion, Sinsung Tongsang’s second-largest shareholder, Chairman Yeom Tae-soon has not yet transferred his shares to his children. This has led to expectations that dividends will be expanded to secure succession funds.