Korean food makers Orion Corp. and Maeil Dairies Co. announced on Tuesday their respective plans to split themselves into separate holding and operating entities.

Orion said its board decided to divide the company into an operating company (tentatively Orion) to be responsible for food manufacturing and marketing, and a holding company (tentatively Orion Holdings) to be responsible for subsidiary management and investment into new business.

Shareholders of Orion will receive shares of Orion Holdings according to their stakes in Orion. The split ratio between holding company and operating company is 34.2:65.8. The demerger plan requires approval in a shareholders’ meeting due on Mar. 31, 2017 and the date for separation is Jun. 1, 2017.

Maeil Dairies will transform the existing entity into a holding company (Maeil Holdings), while creating a new entity (Maeil Dairies) to be responsible for developing, producing and marketing dairy products. The split ratio between new company and existing company is 52.7:47.3. The demerger plan is subject to approval from its shareholders on Mar. 24, 2017. The record date for new share allocation is Apr. 29, and the new shares will be traded from Jun. 5.

Market watchers believe majority shareholders of the two companies are trying to get a firmer grip on management ahead of a revised fair trade act to be effective in July 2017. Under the new law, a company that wants to be a holding company should meet the asset criteria of more than 500 billion won ($425.4 million) instead of the current 100 billion won criteria. The Korean government encourages companies to adopt a holding company system for improvement in corporate governance by offering various tax benefits. Majority shareholders who buy shares of subsidiaries in the course of such transformation exempted from acquisition tax.

In addition, majority shareholders are allowed to up their stakes and strengthen their management control. Under the current law, the transformation into a holding company system requires ownership of at least 20 percent of a listed subsidiary and 40 percent of an unlisted company. During the transition, majority shareholders are allowed to hike their stakes through additional share purchase.

At 1:40 p.m. shares of Orion gained 5.15 percent to 714,000 won ($606) from the previous closing and Maeil shares up 4.9 percent to 40,950 won.

By Baek Sang-kyung

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]