Father Sells Another 1.9 Billion Won, Son Buys Another 1.6 Billion Won... Diverging Investment Moves of Nongshim’s Third-Son Father and Son [Heirs]

<1>Nongshim... Founding Brothers Face the Task of Group Separation
Third Son Shin Dong-ik Sells VS His Son Shin Seung-yeol Buys

Nongshim founder and late Honorary Chairman Shin Chunho's third son, Vice Chairman Shin Dongik of Megamart, and his eldest son, Shin Seungyeol, Head of the Overseas Business Division at Nongshim Milling, have recently taken completely opposite investment actions regarding Nongshim shares, drawing attention in the industry.

According to the Financial Supervisory Service's electronic disclosure system on the 8th, Head of Division Shin Seungyeol purchased 3,738 shares of Nongshim common stock on the market on December 16 last year. His stake increased from 39,400 shares (0.65%) to 43,138 shares (0.71%). The acquisition price was 427,605 won per share, bringing the total purchase amount to approximately 1.6 billion won.

Vice Chairman Shin Dongik sells Nongshim stake for the first time in two years

In contrast, Vice Chairman Shin Dongik sold 4,300 shares of Nongshim on the market in November last year. The disposal price was 462,244 won per share (total sale amount of about 1.98 billion won). Vice Chairman Shin received 100,000 shares of Nongshim from his father, the late Honorary Chairman Shin Chunho, as a gift on June 1, 2017, and inherited an additional 50,000 shares after the honorary chairman passed away in May 2021, bringing his holdings to 150,000 shares (2.47%). However, from the following year through 2023 he repeatedly sold shares on the market, gradually reducing his stake. It has been two years since Vice Chairman Shin once again moved to sell his Nongshim shares. Currently, Vice Chairman Shin's stake in Nongshim has fallen to 1.87% (114,000 shares).

The move by Vice Chairman Shin Dongik to reduce his stake is widely seen as raising the possibility of a "spin-off" between Megamart and Nongshim. Vice Chairman Shin is the largest shareholder of Megamart with a 56.14% stake. Although Megamart has no direct equity relationship with the holding company Nongshim Holdings, it has been classified as an affiliate of the Nongshim Group based on the same person (controlling family) standard.

In the industry, Vice Chairman Shin Dongik’s repeated sales of Nongshim shares are viewed as preliminary steps to separate Megamart from Nongshim. Analysts say that this is an attempt to clearly emphasize that Megamart is in substance an independent company, even if there are changes in the governance structure going forward. A source in the food industry said, "If the largest shareholder of Megamart continues to hold Nongshim shares, interpretations regarding the sincerity of a spin-off could become complicated," adding, "Vice Chairman Shin Dongik’s reduction of his Nongshim stake is moving in the direction of weakening the link between Megamart and Nongshim."

In particular, considering the size of Megamart’s assets, whether or not a spin-off takes place could also be linked to whether the Nongshim Group maintains its designation as a large business group. According to last year’s disclosure on the status of large business groups by the Korea Fair Trade Commission, there are six companies under Nongshim in which Vice Chairman Shin Dongik is involved in management. The total assets of these companies exceed 1.1 trillion won, including 470 billion won at Megamart. Even if Nongshim Development, which has assets of 160 billion won and is 100% owned by Nongshim Holdings, is excluded, if a spin-off is carried out, the total assets of the Nongshim Group would fall from the 5.6 trillion won range as of last year’s public disclosure to the 4 trillion won range.

Dodging large business designation... KFTC files criminal complaint against Nongshim Chairman Shin Dongwon

The Nongshim share transactions by Vice Chairman Shin Dongik and his son took place after the Korea Fair Trade Commission (KFTC) completed its investigation into private benefits within large business groups.

Previously, the KFTC filed a criminal complaint with the prosecution against Chairman Shin Dongwon on charges that, when Nongshim submitted data to the KFTC for determining its designation as a disclosure-target business group (large business group) for 2021-2023, it omitted from its list of affiliated companies a total of 39 firms, including 10 companies in which his maternal uncle’s family held stakes and 29 companies related to executives.

In 2021, the total assets of the companies that Nongshim reported amounted to 4.9339 trillion won, and if the total assets of the omitted companies (93.8 billion won) were added, the figure would have exceeded 5 trillion won, the threshold for designation as a large business group. However, due to the omission, Nongshim avoided being designated as a large business group in 2021, according to the KFTC. Nongshim has been designated as a large business group since the following year.

Nongshim’s primogeniture succession principle... Third-generation management in full swing

Nongshim traces its roots to 1965, when the late Honorary Chairman Shin Chunho founded Lotte Industrial and later changed the company name. There is a well-known anecdote that the name was changed to "Nongshim" due to conflicts between brothers over the ramen business. Shin Chunho was the second younger brother of the late Honorary Chairman Shin Kyukho of the Lotte Group.

However, the key concept in the governance structure of the Shin family at Nongshim is the "primogeniture succession principle." The late Honorary Chairman Shin Chunho adhered to a system in which the eldest son would take charge of Nongshim, the group’s core business, while the other sons would manage their own affiliates independently. In practice, the main operating company Nongshim and the holding company Nongshim Holdings are led by the eldest son, Chairman Shin Dongwon. The second son, Shin Dongyoon, and the third son, Shin Dongik, split the business domains, taking charge of Yulchon Chemical in the packaging materials segment and Megamart in the distribution segment, respectively. Rather than remaining joint managers of the Nongshim core entity, the brothers have each built a system of responsible management centered on their own companies.

This succession principle is being carried over to the third generation. Executive Vice President Shin Sangyeol, the eldest son of Chairman Shin Dongwon, is at the forefront of Nongshim’s next-generation management, overseeing global and future businesses. The second son, Chairman Shin Dongyoon, and the third son, Vice Chairman Shin Dongik, also appear to be reinforcing this eldest-son-centered succession stance. Chairman Shin Dongyoon is in the process of succession by gifting shares to his eldest son, Executive Director Shin Siyul. Currently, the largest shareholder of Yulchon Chemical is Nongshim Holdings, with a 31.94% stake. The second-largest shareholder is Chairman Shin Dongyoon (17.75%), and the third-largest is Executive Director Shin Siyul (6.26%).

The third son’s affiliate, Megamart, is following a similar path. Head of Division Shin Seungyeol, the eldest son of Vice Chairman Shin Dongik, is receiving management training at Megamart while overseeing its overseas business. Based on the experience he has accumulated in the Overseas Business Division, Head of Division Shin is leading Megamart’s overseas expansion. At the end of last year, Vice Chairman Shin stepped down as CEO of Megamart and retreated from front-line management, while appointing Head of Division Shin as an outside non-executive director. Currently, the Megamart board of directors consists of three members: CEO Seo Changheon, Vice Chairman Shin Dongik, and Head of Division Shin Seungyeol.

However, there are also assessments that the businesses run by the second and third sons are not on an entirely smooth track. Yulchon Chemical’s sales fell from 457.8 billion won in 2022 to 414.4 billion won in 2023, and although they have been on a recovery trend since 2024, the company recorded an operating loss last year and posted an additional loss of 2.3 billion won in the third quarter of this year. Megamart’s sales in 2024 also declined slightly to 668.9 billion won from 693 billion won a year earlier. Over the same period, operating profit of 4.3 billion won swung to an operating loss of 1.4 billion won.

In January, Vice Chairman Shin Dongik participated in a paid-in capital increase by Nongshim Milling, in which he and his children hold 100% of the shares, providing around 600 million won in funding. Nongshim Milling appears to be in need of a capital injection after purchasing a building worth approximately 12 billion won late last year to construct a new plant in Cheonan. On the 29th of last month, Nongshim Milling also borrowed 4.4 billion won from Suhyup Bank, using a time deposit owned by NDS as collateral.

NDS has also provided collateral for Nongshim Milling’s borrowings of 5 billion won and 9.9 billion won from NongHyup Bank and Shinhan Bank, respectively. NDS’s largest shareholder is Megamart, which holds a 53% stake, and the three brothers, Chairman Shin Dongwon (15.24%), Chairman Shin Dongyoon (11.75%), and Vice Chairman Shin Dongik (14.29%), also own shares.