SK, Hanwha, Doosan struggle with protests against restructuring plans
This combined photo shows SK's headquarters in Seoul, left, Hanwha's headquarters in Seoul, center and Doosan's headquarters in Seongnam, Gyeonggi Province. Courtesy of each company
Major conglomerates in Korea are facing setbacks in their corporate governance restructuring efforts, as there are increasing concerns that minority shareholders might be disadvantaged as the plans appear to favor controlling shareholders, industry officials said Monday.
Last Wednesday, Hanwha Energy failed in its plan to acquire an 8 percent stake in Hanwha Corp. through a tender offer from July 5 to 24 after facing a severe backlash from the latter’s minority shareholders, who complained about the buyer offering 30,000 won ($22) per share, which is just slightly higher than the current stock price.
The energy firm — entirely owned by Hanwha Group Chairman Kim Seung-youn’s three sons — secured only an additional 5.2 percent stake in the group’s de facto holding company.
Although Hanwha Energy said in a press release that the tender offer enabled responsible management and enhanced shareholder value as planned, some analysts, including Hi Investment & Securities analyst Lee Sang-heon, questioned the hidden intention behind the deal, which was interpreted as an attempt to enable the Hanwha heirs to exercise a stronger influence over the conglomerate’s affiliates.
“Considering Hanwha Energy’s potential to become the key for the group’s succession, there remain questions on whether its acquisition of additional Hanwha Corp. shares can really strengthen responsible management,” the analyst said in a report.
Doosan Group, which seeks to merge Doosan Bobcat with Doosan Robotics, received a letter last Wednesday from the Financial Supervisory Service ordering the company to correct its prospectus on the proposed merger of its lucrative construction equipment unit with its money-losing robotics affiliate.
The financial watchdog’s request was made as Doosan’s plan has drawn a severe backlash from policymakers, as well as investors, due to the possibility of thwarting the Yoon Suk Yeol administration’s efforts to stimulate the Korean stock market.
Under the merger plan, each Doosan Bobcat share would be exchanged for 0.63 Doosan Robotics shares, thereby giving a higher value to the robotics firm’s shares. Doosan Group explained that it complied with the Capital Markets Act in setting the ratio, which stipulates the exchange ratio for mergers involving listed companies be determined based on the average of their recent stock prices.
Shinhan Securities analyst Lee Dong-hyun, however, pointed out that the proposed merger could worsen Doosan Bobcat’s valuation, so he lowered his price target for the company to 50,000 won from 64,000 won.
“We may exclude the company from our coverage,” the analyst said in a report.
SK Innovation, which is pursuing a merger with SK E&S, has been promoting reports from foreign credit ratings agencies expecting the deal to contribute to its stability and financial soundness, in an apparent attempt to calm the oil refiner’s minority shareholders, who have complained about an exchange ratio of 1.2 SK Innovation shares for each SK E&S share.
Last Wednesday, Solidarity for Economic Reform, a civic group, criticized the conglomerate for evaluating SK Innovation at 10.8 trillion won and SK E&S at 6.2 trillion won, despite the fact that the former’s assets are worth 23.5 trillion won, much higher than the latter’s 3.8 trillion won.
“The merger can benefit SK Group Chairman Chey Tae-won and his family, but SK Innovation’s minority shareholders will face damages due to the undervaluation of their shares,” the civic group said.
Market insiders are paying attention to whether the National Pension Service, which holds a 6.2 percent stake in SK Innovation, will side with the conglomerate during the extraordinary general meeting of shareholders on Aug. 27.