Startup giants face competition regulations
By Yoon Ja-young
Mobile messenger operator Kakao and biopharmaceutical firm Celltrion have been listed on an antitrust watchlist.
While the designation means they have succeeded as startups, they now face a gauntlet of tough antitrust and competition regulations.
The Fair Trade Commission (FTC) on Sunday released the newly updated list of large business groups facing restrictions in mutual investment or loan guarantees between subsidiaries.
This year's list of business groups with over 5 trillion won in total assets includes conglomerates such as Samsung, Hyundai Motor, SK, LG, Lotte and GS as well as state-run enterprises such as KEPCO and the Korea Land and Housing Corporation.
The number of business groups on the list increased from last year's 61 to 65 this year, as the FTC added six companies while removing two from the list.
Kakao, which started as a venture firm 10 years ago, rose to the rank of a conglomerate through a series of mergers and acquisitions. Its assets snowballed to 2.8 trillion won in 2014 following a merger with Daum Communications, which operates popular portal Daum. Its assets recently reached 5 trillion won following its acquisition of Loen, a music content provider.
Celltrion, which started as a biopharmaceutical venture 14 years ago, was also designated as a large business group. Its assets reached 5.9 trillion won, increasing by 1.1 trillion won during the past year on surging share prices.
Harim, a poultry-processing firm, also joined the list as its assets increased to 9.9 trillion won following acquisition of maritime transportation operator Pan Ocean.
However, the inclusions are expected to spark controversy over whether businesses that have recently grown from startups should face restrictions equal to family-run conglomerates.
When designated as large business groups by the FTC, businesses face around 35 new regulations. These include a ban on mutual investment and mutual loan guarantees between subsidiaries as well as limitations of voting rights on stakes held by financial subsidiaries.
Hence, Kakao may face problems in launching its planned Internet-only banking service, as it won't be able to expand its own stake in the service as a large business.
It also plans to launch new online-to-offline businesses such as hair salon reservations and chauffeur services, but there is the possibility that it may defy the Korea Commission for Corporate Partnership which announces business areas that are unfit for large business groups each year.
In the case of Celltrion, its business structure may violate a regulation which bans business owner families from taking personal benefits through their companies. Conglomerates are banned from giving much work to firms where the owner family holds over a 30 percent stake, as this leads to more profits for the firm and eventually the owner family.
The government came to ban this practice, as conglomerate chairmen often handed over their wealth to their children this way, at the expense of other shareholders and depriving SMEs of fair competition.
Celltrion may face restrictions as it sells Remsima, its biosimilar copy of the world's third-biggest arthritis treatment Remicade, through the group's marketing and sales subsidiary Celltrion Healthcare. Celltrion Chairman and CEO Seo Jung-jin is the biggest shareholder of Celltrion Healthcare.
While the government has good reason to regulate conglomerates that dominate the country's economy, there thus have been demands that the government raise the criteria of large business groups from the current 5 trillion won to 10 trillion won. This would decrease the number of large business groups to 37 from the current 65 and Kakao and Celltrion would be excluded from the list.
By Yoon Ja-young
Mobile messenger operator Kakao and biopharmaceutical firm Celltrion have been listed on an antitrust watchlist.
While the designation means they have succeeded as startups, they now face a gauntlet of tough antitrust and competition regulations.
The Fair Trade Commission (FTC) on Sunday released the newly updated list of large business groups facing restrictions in mutual investment or loan guarantees between subsidiaries.
This year's list of business groups with over 5 trillion won in total assets includes conglomerates such as Samsung, Hyundai Motor, SK, LG, Lotte and GS as well as state-run enterprises such as KEPCO and the Korea Land and Housing Corporation.
The number of business groups on the list increased from last year's 61 to 65 this year, as the FTC added six companies while removing two from the list.
Kakao, which started as a venture firm 10 years ago, rose to the rank of a conglomerate through a series of mergers and acquisitions. Its assets snowballed to 2.8 trillion won in 2014 following a merger with Daum Communications, which operates popular portal Daum. Its assets recently reached 5 trillion won following its acquisition of Loen, a music content provider.
Celltrion, which started as a biopharmaceutical venture 14 years ago, was also designated as a large business group. Its assets reached 5.9 trillion won, increasing by 1.1 trillion won during the past year on surging share prices.
Harim, a poultry-processing firm, also joined the list as its assets increased to 9.9 trillion won following acquisition of maritime transportation operator Pan Ocean.
However, the inclusions are expected to spark controversy over whether businesses that have recently grown from startups should face restrictions equal to family-run conglomerates.
When designated as large business groups by the FTC, businesses face around 35 new regulations. These include a ban on mutual investment and mutual loan guarantees between subsidiaries as well as limitations of voting rights on stakes held by financial subsidiaries.
Hence, Kakao may face problems in launching its planned Internet-only banking service, as it won't be able to expand its own stake in the service as a large business.
It also plans to launch new online-to-offline businesses such as hair salon reservations and chauffeur services, but there is the possibility that it may defy the Korea Commission for Corporate Partnership which announces business areas that are unfit for large business groups each year.
In the case of Celltrion, its business structure may violate a regulation which bans business owner families from taking personal benefits through their companies. Conglomerates are banned from giving much work to firms where the owner family holds over a 30 percent stake, as this leads to more profits for the firm and eventually the owner family.
The government came to ban this practice, as conglomerate chairmen often handed over their wealth to their children this way, at the expense of other shareholders and depriving SMEs of fair competition.
Celltrion may face restrictions as it sells Remsima, its biosimilar copy of the world's third-biggest arthritis treatment Remicade, through the group's marketing and sales subsidiary Celltrion Healthcare. Celltrion Chairman and CEO Seo Jung-jin is the biggest shareholder of Celltrion Healthcare.
While the government has good reason to regulate conglomerates that dominate the country's economy, there thus have been demands that the government raise the criteria of large business groups from the current 5 trillion won to 10 trillion won. This would decrease the number of large business groups to 37 from the current 65 and Kakao and Celltrion would be excluded from the list.
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