Celltrion's merger dashed amid shareholder opposition

An exterior view of Celltrion’s second factory in Incheon / Courtesy of Celltrion

Celltrion has suspended its plan to merge with its chemical drug-making unit Celltrion Pharm due to strong opposition from over 90 percent of its shareholders, the biotech firm said, Friday.

According to the companies, their respective boards held meetings on Friday morning and decided not to pursue their proposed merger following a review by an independent committee, which surveyed shareholders and received assessments from outside accounting and consulting agencies regarding the plan.

According to the survey, a majority of Celltrion shareholders opposed the merger, while a majority of Celltrion Pharm shareholders endorsed it.

Among the Celltrion shareholders surveyed, 36.2 percent opposed the plan with 55.1 percent abstaining. Since Celltrion’s largest shareholders, Celltrion Holdings and Chairman Seo Jung-jin, pledged to adhere to the majority's decision, the company reported that 70.4 percent rejected the merger, and overall disapproval regarding the merger stood at 96 percent when abstainers were taken into account.

Among shareholders who opposed the merger, 58 percent expressed dissatisfaction with the current merger ratio between the two companies, while 21 percent said it would create limited benefits. Additionally, those opposing the merger emphasized the need for a “reassessment of the merger ratio” as a key condition if it were to proceed.

Celltrion and Pharm are yet to set their merger ratio, but minor shareholders of Celltrion have been expressing concerns because the country’s law sets the merger ratio of two listed companies based on their current share prices.

On Thursday, Celltrion closed at 194,600 won and Celltrion Pharm ended at 77,100 won. If the ratio is set based on these prices, one Celltrion share can be exchanged for approximately 2.5 Pharm shares, even though Celltrion’s sales are worth over 20 times that of Pharm.

Celltrion shareholders claim that Pharm’s shares are overvalued, citing its price-earnings ratio (PER) that hovered over 194 on Friday. PER is the ratio of a company's share price to its net profit, thereby indicating whether it is overvalued or undervalued. Celltrion's PER was approximately 83 on Friday.

Celltrion Group Chairman Seo Jung-jin speaks during a press conference concerning the group's merger plans in Seoul, Oct. 25, 2023. Yonhap

On the other hand, 67.7 percent of surveyed Pharm shareholders endorsed the merger, citing that it would help the company grow into a comprehensive biologics firm and create synergy in developing novel drugs.

Accounting firms that evaluated the proposed merger also noted that Pharm has potential in areas such as antibody drugs marketing, contract manufacturing and other fields even though this potential has yet to be realized. Also, Pharm’s valuation would become more justifiable once all of this potential materializes and the market becomes more convinced.

Celltrion also noted that the overwhelming opposition or abstention from Celltrion shareholders would trigger a massive exercise of appraisal rights by dissenting shareholders, forcing the company to purchase opposing stakes at costly prices.

“Based on the feedback from shareholders and the review by the committee, we have decided not to proceed with the merger with Pharm at this time,” Celltrion's board said in a statement. “While there is potential for synergy from the merger, the strong opposition from many shareholders and various other aspects contributed to this decision.”

Lee Jae-sik, the committee’s chair, said, “This decision-making process will serve as a model case of transparent management, aligned with the company’s commitment to environmental, social and corporate governance principles and shareholder value.”

An official at Celltrion Group said following the board's decision, the two companies will focus on their own businesses to facilitate growth and synergy.

“Since an integration ensuring both companies’ shareholder profits can be considered whenever shareholders want, we will continue to pay attention to shareholders' opinions,” the official added.