Unclear Motivation
Celltrion Healthcare, the overseas sales and marketing unit of the Celltrion Group, is planning to go public within this year, but industry analysts raise concerns that the plan is only for Celltrion’s founder and chairman Seo Jung-jin to avoid antitrust and competition regulations in South Korea.
Celltrion recently confirmed that Celltrion Healthcare is preparing to go public by the end of this year.
Amended antitrust regulations made on June 9 raise the standard for designating a business group as a conglomerate from 5 trillion won (US$ 4.5 billion) of total assets to 10 trillion won (US$9 billion). Therefore, Celltrion with its 5.9 trillion won (US$5.3 billion) of total assets will be exempted from antitrust and competition regulations specifically targeting conglomerates in Korea.
However, Celltrion Healthcare still violates the regulation that bans the largest shareholder of the business group with more than 5 trillion won from taking personal benefits from its affiliate company through internal deals among the affiliates. The regulation applies differently to listed and unlisted firms in Korea. In the case of a listed company, the regulation is applied to an owner having more than 30 percent of its stocks, while a maximum of 20 percent is allowed to the owner of an unlisted firm.
In the case of Celltrion Healthcare that is an unlisted firm and registered in the curb market, Celltrion’s founder and chairman Seo Jung-jin is the largest shareholder with 53.84 percent of Celltrion Healthcare’s shares. In order to avoid the regulation, Celltrion has to lower Seo’s share to less than 20 percent. However, an official at Celltrion confirms that there is no possibility that Seo would sell his shares to lower the current percentage.
As Celltrion gains 97 percent of its total medicine sales from overseas markets, which is managed by Celltrion Healthcare, the possibility of Celltrion Healthcare coming under scrutiny for the potential violation of the antitrust regulation could block its overseas sales and give a critical impact on the company’s survival, raising shareholders’ concerns.
Under the circumstances, it is more likely that Celltrion Healthcare would seek an IPO and then merge with Celltrion, the flagship company of the Celltrion Group that specializes in R&D and production of biological medicine.
Such an approach, however, is expected to raise a criticism that the company plays just a trick to avoid the regulation.
In November last year Celltrion had already made an announcement that Celltrion Healthcare would go public and be merged with Celltrion with the ultimate goal of both simplifying the group’s structure and bringing Celltrion Healthcare under the control of Celltrion Holdings, the parent company and largest shareholder of Celltrion with 21.6 percent of its stocks. It is known that Seo owns 93.9 percent of Celltrion Holdings’ stocks.
With this scenario, it draws much attention how Seo will manage to control the issue to defend his personal interests in the medicine business group during the grace period of around two years not subject to the regulation.