Sunjin Beauty Science, a KOSDAQ-listed company, withdrew its board-approved plan to spin off its clinical division as a separate entity. The company said more shareholders than expected opposed the decision and exercised their appraisal rights.
The spin-off, viewed as a drag on the share price, was scrapped, but shareholders' discontent has not eased. After the spin-off announcement, the stock plunged, and with the decision now withdrawn, shareholders can no longer sell their shares back to the company at the previous benchmark price.
The company said it gauged shareholders' views during the process and will not pursue a spin-off going forward. It also said it is pushing shareholder return policies, including buying back shares for full cancellation, and expects the share price to soon recover to its previous level.
On the 1st, the company said it would withdraw the decision to spin off the clinical division. It had planned to buy shares from dissenting shareholders at a benchmark price, but it scrapped the plan after the scale of appraisal rights exercised exceeded the cap.
Earlier, on May 5, the company decided at a board meeting to spin off the clinical division to establish an independent corporation. As it expanded its original design manufacturer (ODM) cosmetics business and concerns about conflicts of interest with existing clients grew, it planned to separate the division handling cosmetics testing, research and development outsourcing, and pharmaceutical inspections.
The company set the buyback price for dissenting shareholders' shares at 10,677 won per share and capped appraisal rights at 2 billion won.
The problem was that the share price plunged after the spin-off plan was announced. Just before the announcement, the stock was around 10,000 won, but after the decision, it fell to about 6,000 won this month. As the stock slumped, existing shareholders rushed to exercise appraisal rights. With performance already weak and the stock underperforming, many shareholders opted to hand their shares to the company.
The 2 billion won cap set by the company would allow it to acquire about 180,000 shares at the benchmark price. However, as of the end of March last year, retail shareholders held 49.5% of Sunjin Beauty Science, owning about 6.03 million shares.
As the stock plunged and investors flocked to exit by exercising appraisal rights, the company ultimately withdrew the spin-off decision.
The company said, "We confirmed that shareholders' concerns and disappointment over the spin-off decision are significant," adding, "We will not pursue another spin-off." Instead, the company plans to operate its key units—cosmetics ingredients, ODM, and clinical—separately to ease client concerns and create organic synergies among businesses.
Still, shareholder backlash is unlikely to subside soon. The share price plunged after the spin-off decision, and with the withdrawal, the chance to sell at the benchmark price has disappeared. The broad weakness in the KOSDAQ market, amid strength in semiconductor stocks, is also expected to weigh on a recovery.
In response, the company said, "To enhance shareholder value, we decided to buy back 3 billion won worth of our own shares and will cancel them in full after the repurchase."