‘One Shot Act’ Expected to Expedite Large Businesses’ Reinforcement of Corporate Governance, Reorganization

As the National Assembly passed the Special Act on Revitalizing Companies called “One Shot Act” on January 4, large companies such as Samsung and Hyundai Motor are expected to speed up business reorganization and corporate governance. 

It is the Samsung Group that will enjoy the most benefits from the passage of the One Shot Act. Even though vice chairman Lee Jae-yong’s succession of the helm of the Samsung Group from chairman Lee Kun-hee reached the completion stage, the business group is faced with pending issues such as the establishment of an intermediate financial holding company and a decision on whether or not the group will switch to a holding company structure.

In particular, the Samsung Group laid the foundation for a change in its corporate governance structure such as Samsung Life’s taking over 37.45 percent equities in Samsung Card from Samsung Electronics. The passage of the act will enable the Samsung Group to extend the deadline of selling off equities to three years from current two years due to a switch to a holding company structure.

It is expected that more time will empower the Samsung Group to slash Samsung Life’s equities in non-financial subsidies such as Samsung Electronics and Hotel Shilla while maintaining the value of stocks at the highest level even though it is not clear whether or not a revision of the Act on Separation of Financial and Industrial Capital will be passed at the National Assembly.      

In addition, Samsung Life is able to take over Samsung Card without holding a general shareholders meeting since Samsung Life holds a 72 percent stake in Samsung Card. This fact can bring more choices to the Samsung Group. 

Furthermore, it is possible to newly establish separate business divisions on a small scale for the automotive electronic parts team at Samsung Electronics and for the business departments related to auto parts at Samsung SDI and Samsung Electro-Mechanics with the goal of reinforcing the competitiveness of the group’ five new businesses such as automotive electronic parts. A period to execute appraisal rights is halved and a period to buy stocks of an M&A target company will increase to three months from one month.

Thus, the system has been strengthened to prevent another Elliot case which took place during Samsung C&T’s integration process. This point will come in handy for the Samsung Group’s additional business reorganization.

The Hyundai Motor Group will be able to turn into a holding company system based on Hyundai Glovis whose 40 percent equities belong to the group’s vice chairman Chung Eui-sun. Various scenarios are possible. For example, vice chairman Chung will be able to expand his power while dividing Hyundai Mobis and merging it with Hyundai Glovis. Or he will be able to establish a subsidiary of Hyundai Motor and merge it with Glovis.    

But the government and the political world apply the One Shot Act only to companies in the industries suffering from over-supplies and deter reorganization plans for the succession of managerial rights and the reinforcement of a corporate governance structure from being approved. A violation of this rule will bring a fine triple the support fund. But some experts are questioning the effectiveness of this rule since standards on business reorganization and the succession of managerial rights are blurred.

In the case of the SK Group, eased equities in sub-sub-subsidiaries can allow SK Hynix to expand its business and the SK Group to buy time to decide whether or not the group will sell off SK Securities. This explains that the SK Group will enjoy the benefits of the One Shot Act.    

In particular, as a holding company’s obligatory equities in a sub-sub-subsidiaries shrank to 50 percent from current 100 percent, SK Hynix, which can be called a “sub-subsidiary,” will be able to decrease its burden for making M&A deals. Or the SK Group will be able to spin off SK Telecom and merge it with SK Holding C&C, the holding company and elevate SK Hynix to a subsidiary from a sub-subsidiary.  

The act is expected to empower large business groups, such as the Hanwha Group, to switch to holding company structures, reinforce managerial rights and turn into intermediate financial holding companies. Besides, the new act is expected to expedite industrial restructuring such as promoting M&As in the shipbuilding and steel industries faced with crises due to gluts among others.