Treasury Shares Exchanged Worth 13.8 Billion Won...
Suspicions of Evading Mandatory Cancellation
Direct Challenge to Government Policy...
Owner Families Expand Control
Daewoong and Kwangdong Pharmaceutical have solidified the controlling power of their respective owner families by swapping treasury shares. This move is interpreted as a preemptive strategy ahead of the revised Commercial Act, which will require the mandatory cancellation of treasury shares. Such an action is seen as directly contradicting the current government's emphasis on protecting shareholder value.
According to the Financial Supervisory Service's electronic disclosure system on December 24, Kwangdong Pharmaceutical announced that it would dispose of 6,645,406 treasury shares (12.7%) for 39.7 billion won. Of these, Daewoong will acquire 2,309,151 shares (4.4%) at a purchase price of 13.8 billion won.
Daewoong will also transfer treasury shares to Kwangdong Pharmaceutical equivalent in value to the shares it acquires. On the same day, Daewoong disclosed that it would transfer 581,420 treasury shares (1.0%) to Kwangdong Pharmaceutical. In effect, Daewoong and Kwangdong Pharmaceutical have exchanged their treasury shares with each other.
Through this treasury share swap, the owner families of Daewoong and Kwangdong Pharmaceutical have been able to increase their respective control. While treasury shares held by a company do not carry voting rights, once sold to a third party, voting rights are granted. This allows each company to act as a "white knight," exercising voting rights on behalf of the other’s owner family with the shares they hold.
Kwangdong Pharmaceutical is currently managed by Chairman Choi Sungwon, the second-generation owner, whose stake is 6.59%. Including shares held by family members and related parties, the total is only 18.19%. However, with Daewoong acquiring a 4.4% stake in Kwangdong Pharmaceutical, Chairman Choi’s friendly stake has increased to 22.6%.
The largest shareholder of Daewoong is also a second-generation owner, CVO Yoon Jaeseung, who holds 11.64%. Including shares held by related parties, the total amounts to 38.06%. In addition, the 1% of Daewoong’s treasury shares acquired by Kwangdong Pharmaceutical will be added as friendly shares.
This kind of treasury share swap to secure owner family control runs counter to the current administration’s efforts to enhance shareholder value. This is because treasury shares, purchased with company funds, are being used for the benefit of certain shareholders, such as the owners, rather than all shareholders.
In response, lawmakers have proposed amendments to the Commercial Act that would mandate the cancellation of treasury shares. On November 24, Oh Ki-hyung, Chairman of the Democratic Party’s KOSPI 5000 Special Committee, sponsored the "Third Amendment to the Commercial Act," which would require companies to cancel treasury shares within one year of acquisition. The KOSPI 5000 Special Committee pointed out, "We must break away from the outdated practice of misusing treasury shares for the convenience of specific shareholders."
Meanwhile, regarding the treasury share swap, Kwangdong Pharmaceutical stated, "Through a strategic partnership with Daewoong, we expect significant growth and improved profitability in our prescription drug business. Furthermore, we believe that this cooperation will contribute to enhancing shareholder value through mid- to long-term growth."
Daewoong commented, "While maintaining our respective existing business areas, we have selected the other company as the optimal partner for the disposal of treasury shares, aiming to organically combine each company’s strengths and establish a cooperative structure that secures both short-term performance and a foundation for mid- to long-term growth."
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