Soulbrain Holdings, which diversified its business through aggressive mergers and acquisitions (M&A), has now decided to sell the equity in its U.S. subsidiary, securing a sizable amount of cash.
In the industry, Soulbrain Holdings' investment cases are steadily producing results, and analysts say its corporate value will rise further over the mid to long term. Investors are also focused on how Soulbrain Holdings will use the cash it has secured this time.
Still, Soulbrain Holdings' share price has struggled to escape its slump. The chronic holding company discount persists, the business conditions in its key secondary battery materials and display departments remain weak, and uncertainty over succession lingers, analysts say.
Soulbrain Holdings said it recently decided to transfer 100% equity in its U.S. subsidiary ARK Diagnostics to a U.S. special purpose company (SPC). The transaction to transfer the equity to Artemis JV LLC, an SPC established in Delaware in Aug., amounts to 607 billion won.
Once the contract is completed, Soulbrain Holdings will immediately pocket 475.6 billion won in cash, equivalent to half of its market capitalization, and is set to secure a 40% equity stake in the acquiring SPC by contributing a portion of equity in kind. The 100% equity in ARK will be held by a grandchild SPC to be established by the SPC.
As a result, Soulbrain Holdings effectively sold 60% equity in ARK for 521.9 billion won (the cash secured plus 46.4 billion won in loans to the SPC), and based on this, ARK's valuation is estimated at about 870 billion won.
ARK develops in vitro diagnostic products using ELISA, an immunological diagnostic technique that uses enzymes and antibodies to accurately measure the concentration of specific substances in blood and bodily fluids, and posted more than 40 billion won in net profit last year.
Soulbrain invested in ARK in 2018. Before Soulbrain was spun off from Soulbrain Holdings, Chair Jeong Ji-wan's family company Materials Park and Soulbrain acquired 100% equity in ARK for a total of 50.7 billion won. In just seven years, however, the company's valuation has jumped 17 times.
Kim Kyung-min, a researcher at the Korea IR Association, said, "Soulbrain Holdings is actively pushing to expand into non-IT businesses, moving away from its traditional IT-centered operations," and added, "In particular, in the bio-healthcare institutional sector, it has entered the in vitro diagnostics business through ARK, Pixel Medical Technology, and Jinkem, securing a new growth engine."
Soulbrain Holdings also has GENIC, a mask pack specialist once famous for the "Hayumi pack," as an affiliate. GENIC's share price once plunged as relations with China deteriorated, but it has shown a sharp uptrend since last year. In 2015, Soulbrain Holdings acquired 25% equity and management control by purchasing GENIC shares at 43,680 won per share. It is currently the largest shareholder with 34.55% equity in GENIC.
Soulbrain Holdings is also investing aggressively through NAU IB Capital, a venture capital firm where Chair Jeong Ji-wan is the largest shareholder. Early this year, Soulbrain Holdings invested 70 billion won in L&C BIO through a fund created by NAU IB Capital. It participated in L&C BIO's rights offering and purchased convertible bonds, and L&C BIO's share price has surged recently.
Wooyang HC, which was delisted 10 years ago and reentered the stock market last year through a SPAC merger, is another case where Soulbrain Holdings invested via NAU IB Capital. Related parties, including Soulbrain Holdings (39.35%), hold 76.46% equity in Wooyang HC.