South Korean textile giant Hyosung Group revamped its governance structure in June by making Hyosung Corp. a holding company that controls the four spun-off affiliates. Yet the new system is still incomplete as Hyosung Corp. has not secured enough stakes in its newly created affiliates. To cement the holding company’s control of the affiliates, the group has decided to take over stakes in these four companies from their shareholders by giving them new shares in Hyosung Corp. in return. If this scheme works, Hyosung Corp. will be able to strengthen its control of the four affiliates and meet the requirements for a holding company.
Currently, Hyosung Corp. has a 5.26 percent stake in each of the four newly created subsidiaries -- Hyosung TNC, Hyosung Heavy Industries, Hyosung Advanced Materials and Hyosung Chemical.
The group plans to boost Hyosung Corp.’s stake in Hyosung TNC to 36.12 percent, Hyosung Heavy Industries to 20.66 percent, Hyosung Advanced Materials to 23.27 percent and Hyosung Chemical to 19.95 percent.
To finance the stake purchase plan, Hyosung Corp. will issue a total of 12,998,801 of new shares at a price of 45,970 won (US$40.31) per share. The total value of the newly issued shares will be 597.55 billion won (US$523.94 million).
The scheduled date of the public purchase is from Nov. 28 to Dec. 17, while new shares are scheduled to be listed on Jan. 4 next year. Hyosung Corp. will purchase 1.3 million Hyosung TNC shares at 166,000 won (US$145.55) per share, 2.8 million Hyosung Heavy Industries shares at 44,100 won (US$38.67) per share, 1.35 million Hyosung Advanced Materials shares at 103,000 won (US$90.31) per share and 950,000 Hyosung Chemical shares at 125,500 won (US$110.04) per share.
If the acquisition scheme is completed as planned, Hyosung Corp. will satisfy the requirements for a holding company’s stake ownership in subsidiaries. Under the current fair trade law, a holding company is required to own more than a 20 percent stake in a listed subsidiary.
When the family members of the largest shareholder participate in the public purchase, their control of Hyosung Corp. can be strengthened further. Honorary chairman Cho Seok-rae, chairman Cho Hyun-joon and president Cho Hyun-sang hold a 10.2 percent, a 14.6 percent and a 12.2 percent stake in Hyosung Corp. and each of the four subsidiaries. In particular, chairman Cho's stake in the holding company will increase to 31 percent when he hands over his stakes in the subsidiaries and receive new Hyosung Corp. shares.
Hyosung Corp. must sell off its stake in the financial unit, Hyosung Capital, within two years after adopting a holding company structure under the regulations on the separation of banking and commerce. The total assets of Hyosung Capital came to 2.51 trillion won (US$2.2 billion) as of the end of June and Hyosung Corp. owns a 97.5 percent stake in the company.
Hyosung said, “We are considering various ways to meet the requirements for control restriction by selling off our stake in Hyosung Capital.”