Livestock feed company Woosung(006980) listed on the stock market decided to absorb and merge its unlisted affiliate Woosung Distribution. Instead of the undervalued share price, it set the merger price based on asset value and chose to exchange existing treasury shares without issuing new shares.
On the surface it is a small affiliate absorption merger, but significant changes in governance are expected, including the Oner third generation stepping to the fore after the merger is completed. This is because the equity stakes of the largest shareholder and related parties will increase, and the largest individual shareholder will change from second-generation Jeong Bo-yeon (72), chair, to his two sons, Jeong Jun-yeong (37), executive director, and Jeong Jun-seop (36), head of HR.
Amid assessments that the company effectively used treasury shares for succession and business reorganization, Woosung shares were surging more than 20% on the 7th.
Woosung said it decided to absorb and merge its affiliate Woosung Distribution. The decision is to transfer the distribution business handled by Woosung Distribution to Woosung and integrate the value chain of the livestock food business—feed, farms, and distribution—into a single organization.
The merger ratio is 1.8702948 shares of Woosung Distribution for each 1 share of Woosung. It is a structure of granting 100 shares of Woosung for 187 shares of Woosung Distribution.
What particularly drew investors' attention is the merger ratio. Typically, a listed company uses market price to calculate the merger price, but Woosung applied asset value. This considered the situation in which the company's share price did not fully reflect asset value and was "undervalued." Under the Financial Investment Services and Capital Markets Act, if the reference market price is lower than asset value, the merger price can be calculated based on asset value.
Applying market price, Woosung's merger price would be 15,860 won, but applying asset value, the merger price jumped to 71,516 won.
For unlisted Woosung Distribution, the merger price was set at 133,756 won based on an evaluation by external appraiser EY Hanyoung that considered asset and revenue values.
Under the merger ratio, Woosung must exchange shares with Woosung Distribution shareholders, and it decided to use the company's treasury shares instead of issuing new shares.
Equity in Woosung Distribution is held 50% each by Jun-yeong and Jun-seop. After Woosung delivers treasury shares to Jun-yeong and Jun-seop, the largest shareholder equity in Woosung will change significantly.
Currently, Chair Jeong Bo-yeon is the largest individual shareholder, holding 12.73% equity in Woosung. Jun-yeong and Jun-seop hold 6.31% and 6.35%, respectively. After the share exchange for the merger, their Woosung equity will rise to 14.36% and 14.40%, respectively. Woosung's treasury share ratio, currently 16.06%, will fall to 4.81% after the share exchange.
Accordingly, there is an outlook that succession and third-generation management at the Woosung group could gain full steam. By using treasury shares held by the company, it minimized dilution of existing shareholders' equity while enhancing the Oner third generation's control and reorganizing the business structure.
Woosung traces its roots to Samsung Feed Industrial Company, founded in 1968 by founding chair the late Jeong In-beom. The company was later led by second son, Chair Jeong Bo-yeon. Its affiliates include Woosung Feed, Wooseon Trading, Woosung Transportation, Woosung Food, and Daejeon Broadcasting (TJB).
Meanwhile, the company said that in relation to this merger decision, it established a special committee (nonstanding body) composed of three external experts to prevent conflicts of interest among shareholders and to protect shareholders. The special committee evaluated that the merger decision is a reasonable transaction that can improve management efficiency and contribute to increasing shareholder value, and that applying asset value in calculating the merger price is appropriate considering shareholder interests.
Shareholders who oppose this merger decision can exercise appraisal rights. If a shareholder exercises appraisal rights, the company must purchase the shares at 18,313 won per share. However, if the total amount of appraisal rights exercised exceeds 10 billion won, the merger plan could be scrapped.