The head of the Chong Kun Dang group transferred all of his shares in subsidiary Kyongbo Pharmaceutical to his three children and acquired an information technology (IT) specialty media outlet, adding another subsidiary. The company did not provide a specific explanation for the equity donation and said the media acquisition was to strengthen its IT strategy. But in the investment market and the pharmaceutical industry, there was an interpretation that the owner family is bolstering cash flow to lay the groundwork for succession.
Kyongbo Pharmaceutical disclosed on the 9th that Chairman Lee Jang-han of Chong Kun Dang and his wife, Jung Jae-jung, donated all of their holdings—479,363 shares and 478,140 shares, respectively—of the company's stock to their three children (Lee Ju-won, Lee Ju-kyung, Lee Ju-a).
With this donation, the number of Kyongbo Pharmaceutical shares held by the eldest son, director Lee Ju-won of Chong Kun Dang, increased to 1,484,783, expanding his equity stake to 6.21%. The eldest daughter, Lee Ju-kyung, and the second daughter, Lee Ju-a, also received 300,000 shares each, bringing their equity stakes to 5.62% and 5.26%, respectively.
Kyongbo Pharmaceutical mainly operates in the generic (synthetic drug copycat) and active pharmaceutical ingredient businesses. Last year, its annual sales rose 10.3% from the previous year to 238.6 billion won, and operating profit jumped 88.5% to 10.5 billion won.
An analysis has emerged that the couple's donation of their entire subsidiary equity to their children was intended to reduce their tax burden and make the succession framework more flexible.
A financial industry source said, "Kyongbo Pharmaceutical has a lower valuation than Chong Kun Dang Holdings and Chong Kun Dang, which are listed within the group," adding, "They are seeking to donate when the share price is low to reduce the gift tax burden." The source also said, "Given that more equity was funneled to the eldest son, there appears to be an intention to pass down management control centered on the eldest son."
One of the factors lending weight to this interpretation is the eldest son's promotion. Director Lee Ju-won joined management in 2018 as an inside director at Chong Kun Dang Industry. After serving in key positions within the group, he was promoted from associate director to director in last year's year-end personnel moves. On the other hand, some responded that it is premature to conclude the succession structure, given that the children's equity stakes are not vastly different.
From the perspective of a conglomerate owner family, using subsidiary equity can also help increase the children's cash assets. Kyongbo Pharmaceutical has paid cash dividends once a year. Based on last year's figures, the par value per share of Kyongbo Pharmaceutical was 500 won, and the cash dividend payout ratio was assessed at about 25.8%. Another financial industry source explained, "In terms of par value, it is not a large sum, but if the trend of improved performance continues, the cash dividend revenue the children receive will also increase."
Changes to Chong Kun Dang's assets are not limited to the equity donation. Late last month, the company made the online IT specialty outlet Digital Daily a subsidiary. The acquisition price was about 20 billion won, roughly 4.8% of the total assets of Chong Kun Dang Holdings.
With this addition, the number of subsidiaries (affiliates with special relationships) under holding company Chong Kun Dang Holdings increased to nine. The Chong Kun Dang group has a total of nine subsidiaries under Chong Kun Dang Holdings, including Chong Kun Dang, Chong Kun Dang Health, and Kyongbo Pharmaceutical. Chong Kun Dang Holdings receives dividends and fee revenue from its subsidiaries. According to the company's semiannual report, operating revenue that Chong Kun Dang Holdings collected from eight subsidiaries from January to June this year was about 16.6 billion won.
The largest shareholder of Chong Kun Dang Holdings is Chairman Lee Jang-han. His wife, three children, relatives, and Bell SM hold equity alongside him, bringing the family's equity stake to about 48%. Established in 2006, Bell SM is a business facilities management and leasing services company, and the largest shareholder is the eldest son, director Lee Ju-won, who holds a 40% equity stake. Chairman Lee Jang-han holds 30%, and the eldest and second daughters each hold 15%.
An industry source said, "In many corporations, owner families use equity in holding companies and subsidiaries as a pathway to solidify group control and proceed with succession," while adding, "However, this media acquisition does not look like a typical succession strategy for corporations, but rather appears to be for business diversification or investment purposes."
Chong Kun Dang also drew a line against the market's expansive interpretations, saying the media acquisition is part of strengthening its artificial intelligence (AI) and digital strategy. The company said, "The purpose is to obtain industry trends and information and apply them to internal businesses such as new drug development to create synergy."