The management rights dispute between the owner family of Dong Sung Bio Pharm, involving the second and third generations, is escalating as it spreads into litigation.
Dong Sung Bio Pharm disclosed a report on key matters related to a lawsuit regarding the prohibition of new stock issuance to the Financial Supervisory Service on the 9th.
According to this, the second-generation owner Lee Yang-goo, chairman and former CEO of Dong Sung Bio Pharm, and the largest shareholder Brand Refactoring filed a lawsuit on the 1st with the Seoul Northern District Court against Dong Sung Bio Pharm to prohibit the listing of new shares. Later that afternoon, Chairman Lee re-disclosed that he withdrew the lawsuit, without revealing specific reasons for the withdrawal.
Dong Sung Bio Pharm, established in 1957, is a mid-sized pharmaceutical company engaged in the production of medicines and cosmetics, with key products including the anti-diarrheal drug 'Jeongrohan,' the dye 'Seven Eight,' and the hair loss treatment 'Minoxidil.'
Last year, the company transitioned to a third-generation management system after Chairman Lee Yang-goo stepped down from management and appointed his nephew Na Won-kyun as the new CEO. Chairman Lee is the son of the late founder Lee Seon-kyu of Dong Sung Bio Pharm. The current CEO, Na Won-kyun, is the son of Lee Kyung-hee, the representative of Omasarip Cosmetics and the sister of current Chairman Lee Yang-goo.
In other words, Chairman Lee and CEO Na are uncle and nephew, and a management rights dispute has erupted between Chairman Lee's side and CEO Na's side.
The management rights dispute surfaced when the major shareholder, Chairman Lee, transferred his equity to the marketing company Brand Refactoring last month. In that month, Chairman Lee contracted to sell all of his shares, 3.68 million shares, to Brand Refactoring for 12 billion won. Brand Refactoring is a company whose 60% equity is held by Baek Seo-hyun, the representative of the medical device company Selestra, which is listed on the KOSDAQ. Currently, Selestra is at risk of delisting.
Dong Sung Bio Pharm holds that Chairman Lee's sale of equity was a decision made without prior consultation with CEO Na. Consequently, Dong Sung Bio Pharm applied for corporate rehabilitation procedures (court management) to the Seoul Rehabilitation Court on the 7th. When a listed company applies for the commencement of rehabilitation procedures, trading of its stocks is suspended until a decision is made.
Of the shares owned by Chairman Lee, over 860,000 shares (3.31%) were agreed to be transferred to Brand Refactoring after a temporary shareholders' meeting, but the company's application for court management put a halt to this. Dong Sung Bio Pharm stated that the reason for applying for commencement of rehabilitation procedures was "to preserve the value as a going concern and to normalize management." Chairman Lee intends to hold a temporary shareholders' meeting to replace the representatives and board of directors of Dong Sung Bio Pharm.
Interpretations suggest that both Dong Sung Bio Pharm's application for court management and Chairman Lee's lawsuit for a preliminary injunction are preparations for the equity competition between both sides. The stocks for which Chairman Lee requested a listing prohibition are 518,537 shares associated with a third-party allocation capital increase resolution against SD Energy, made by the Dong Sung Bio Pharm board on the 16th of last month.
Currently, in the equity competition, Chairman Lee (3.31%) and Brand Refactoring (10.8%) hold a superior structure. Including his two sons and spouse's equity, Chairman Lee's supportive equity totals 15.62%. The second largest shareholder, CEO Na, holds 4.09%, while the equity held by CEO Na's mother, Lee Kyung-hee, is 1.55%.
However, if the new shares allocated to SD Energy are listed and the exchangeable bonds issued to Deep Lab Korea become allies of CEO Na, then CEO Na's shareholding would reach about 12.77%. The EB can be exchanged for the company's treasury stock held by Dong Sung Bio Pharm starting on the 26th. The exchange price is 3,985 won, and the total number of exchangeable shares is 1,756,587. Given that the proportion of treasury stock held by Dong Sung Bio Pharm is 10.48%, the dynamics of the management rights dispute could change.
Dong Sung Bio Pharm is experiencing increasing management difficulties. Last year, it recorded an operating loss of 6.6 billion won, marking its transition to a loss. The revenue for last year was 88.4 billion won, down 200 million won from the previous year. On the 8th, the company revealed that it failed to settle a maturing electronic bill of 103.48 million won at the Industrial Bank of Korea's Banghak-dong branch, resulting in a first default processing. However, the company clarified that the failure to settle the amount of 103.48 million won was due to "a lack of deposits on our part" and stated, "We deposited the amount of the electronic bill of 103.48 million won on that day."
As the owner family's management rights dispute continues, forecasts suggest that Dong Sung Bio Pharm's management difficulties will intensify. Regarding the management difficulties, Chairman Lee and CEO Na are engaged in a blame game. Chairman Lee's side argues that they aimed to solve the company's management difficulties by successfully borrowing funds, thus transferring management to his nephew in October last year but claims the nephew failed to address the issue. The representative's side contends that the previous management made erroneous financial agreements.