Must Asset Management issued its third public letter regarding the spin-off plan of PharmaResearch, a pharmaceutical company embroiled in controversy over duplicate listings. Must Asset Management holds 1.2% equity in PharmaResearch as a minority shareholder.
According to the investment banking (IB) industry on the 3rd, Must Asset Management urged clarification in its third letter posted on its website on the 2nd, stating that the governance concerns raised by Pixelity, a company founded by the eldest son of the controlling shareholder, are troubling. Additionally, it requested an explanation regarding the stance of CVC Capital on this spin-off plan and the relationship between PharmaResearch and Pixelity.
Must Asset Management noted that "the company's response to the duplicate listings issue by the 1st was unreasonable and related decisions have not been retracted," adding that "the company Pixelity, created by Jung Raeseung, director and eldest son of the controlling shareholder of PharmaResearch, Chung Sangsoo, could pose a larger problem after the future transition to a holding company system, requiring further questioning."
Must Asset Management pointed out that Pixelity has been performing service contracts with PharmaResearch and its subsidiary, Turing Bio, as a VR (virtual reality) and XR (extended reality) company, but the identity of the major shareholder and the scale and background of the contracts are completely unknown.
Moreover, it mentioned that PharmaResearch has outsourced the development of rehabilitation medical devices to this company and there are signs suggesting that it may prepare for acquisition or investment in Pixelity after the establishment of the holding company, calling for a statement regarding this matter.
Must Asset Management added that "once the duplicate listings spin-off is completed, the controlling shareholder's equity ratio is expected to increase from the previous 30% to over 60%," expressing concerns that the monitoring power of other common shareholders will decrease to less than half, leaving no choice but to worry about Pixelity.
Must Asset Management raised suspicions about favoritism, stating that Pixelity continues to enter into service contracts with PharmaResearch despite its ongoing deficits. According to Must Asset Management, Pixelity recorded a loss of over 1 billion won in 2022, 2023, and is expected to incur a loss of about 2 billion won in 2024, leading to a net worth of minus (-) 3.4 billion won by the end of 2024.
PharmaResearch is well-known for its cosmetics and medical device brand "Rejuran." The company announced last month that it plans to split into a holding company and an operating company through a spin-off, drawing protests from minority shareholders.
Minority shareholders argue that simultaneous listings of the holding company and its subsidiary dilute the company's value and raise concerns about a stock price crash. The decision on the spin-off of PharmaResearch is expected to be made at a temporary shareholders' meeting scheduled for October.