Ildong Pharmaceutical Co., South Korea’s leading drugmaker, is on track of setting up a holding company that will strengthen the control of the owner family. All eyes are on whether it could succeed this time after its first attempt failed two years ago due to disapproval from other shareholders.

Last Wednesday, Ildong Pharmaceutical said in a disclosure statement that it will spin off its businesses and shift to a holding company structure. The market immediately welcomed the move, with retail investors net purchasing more than 50,000 shares of Ildong Pharmaceutical from Mar. 9 to 11 on expectations that the company’s market capitalization would increase after transforming into a holding company. Foreign investors and institutional investors, meanwhile, each offloaded 48,074 shares and 3,927 shares during the same period. The company’s shares jumped 3.8 percent to end a 26,050 won on Tuesday in Seoul trading.

The attempt to set up a holding company comes two years after Ildong Pharmaceutical pushed forward with the plan of shifting to a holding company structure but faced confrontation with Green Cross, then the second largest shareholder of Ildong Pharmaceutical, in an extraordinary shareholders’ meeting in January, 2014. Green Cross worked together with Fidelity Funds, then the third largest shareholder, to oppose the plan as it will only strengthen the control of the owner family.

The drugmaker’s latest attempt, however, is expected to be carried out smoothly. For Ildong Pharmaceutical to turn to a holding company structure, it needs to secure approval from two thirds of the attended voters. Currently, 31.64 percent of Ildong Pharmaceutical shares are owned by Chairman Yoon Won-young and 16 others. Another major shareholder with 20 percent ownership in the company is Sunrise Holdings Co., a private equity firm that bought the stake from Green Cross, and it is known to have decided to share its voting rights with Chairman Yoon, allowing him to practically have 51.64 percent shares.

Ildong Pharmaceutical is expected to be separated into two entities - tentatively called Ildong Pharmaceutical and Ildong Holdings - each responsible for business operations and investment. The new spin-off entity, Ildong Pharmaceutical, will be separated again into three new entities - tentatively called Ildong Pharmaceutical Co. (in charge of medicines), Ildong Bio Science Co. (bio and health supplement) and Ildong Hyal Tech Co. (fillers). After the spin-off, Ildong Holdings will have control over the three separated entities.

Ildong Pharmaceutical plans to hold an extraordinary shareholders meeting on June 24 and spin off the company on Aug. 1. An official from Ildong Pharmaceutical said that through the spin-off, the company will efficiently allocate overall resources and actively promote businesses that match well with the purpose of the new entities.

But once Ildong Pharmaceutical turns into a holding company structure, Chairman Yoon and his family are expected to have more control over management. When a company is separated into a business operating company and an investment company and shares are exchanged in the form of non-financial contributions, the owner family can lower its stake in the business operating company while increase those in the investment company. Industry observers note that Yoon and his family will be able to increase their stake in the investment holding company to as high as in between 50 and 60 percent.

Observers also note that a shift to a holding company structure will further stabilize management, allowing more investments to be made in new business areas including healthcare and food supplement. Currently, Ildong Pharmaceutical has stakes in Ildong Food’Is Co. (29.91 percent), Ildong Healthcare Co. (100 percent), Ildong Aesthetics Co. (52.8 percent), Uni Communications (100 percent), and Rutec Co. (46.36 percent), and once it turns into a holding company structure, Ildong Holdings will be able to invest in other projects and businesses with funds from selling part of the shares in other units.

In the first three quarters of last year ended September, Ildong Pharmaceutical has raised 23 billion won ($19.3 million) in operating profit on sales of 350.3 billion won.

By Yong Hwan-jin

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