The restructuring of Hanmi Pharmaceutical Group's governance has entered a new phase. Shin Dong-kuk (76), chair of Hanyang Precision Co., secured about 30% equity in the group's holding company Hanmi Science by borrowing funds in the 200 billion won range.
Shin's side drew a line, saying, "This is not a management control dispute," but the market views it as a move to break from the founder family-centered structure and secure Shin's independent control. The regular shareholders meeting of core operating company Hanmi Pharmaceutical in Mar. will likely be the first test.
◇ Shin Dong-kuk's 'four-party alliance' cracks, new board... building an independent line
Hanmi Science disclosed on the 24th that Shin had increased his equity stake to about 30%. He teamed up with the personal company of founder's eldest son Lim Jong-yoon, co-CEO of Beijing Hanmi, who has been at odds with the mother and daughter, to purchase additional equity.
The industry analyzes that ahead of the expiration of the four-party alliance agreement in 2029, Shin is preemptively building an independent control base. It is seen as an intention to move beyond the role of a casting vote and lead the direction of the entire group.
On the news, Hanmi Science shares hit the upper price limit in the morning, and closed up 20.23% from the previous day. The market interpreted it as a signal of "deepening conflict in the four-party alliance" and "rekindling of the management control dispute."
During the 2024 management control dispute between the mother-and-daughter owner family of Hanmi Pharmaceutical and the brothers, Shin formed a "four-party alliance" with Hanmi Group Chair Song Young-sook and Vice Chair Lim Joo-hyun, and private equity firm La Defense Partners, and won against the brothers.
At the time, Shin and the mother-and-daughter side signed a shareholders agreement. It guaranteed prior consultation and the right of first refusal in the event of an equity sale, and imposed a 60 billion won penalty for violations.
However, in Jul. last year, when Hanyang Precision Co. issued 38 billion won in exchangeable bonds using its equity stake as collateral, the parties began disputing whether the agreement was violated. The mother-and-daughter side has filed a lawsuit and a provisional seizure, arguing that Shin's side's issuance of exchangeable bonds breached the agreement.
However, at a press roundtable held on the afternoon of the 24th, Shin dismissed it, saying, "It is an overinterpretation to view this as a management control dispute," and "We respect the professional management system." Following this, Hanmi Science shares fell as much as 8.19% intraday on the afternoon of the 25th from the previous day.
Although Shin drew a line on the possibility of reigniting a management control dispute, the industry and experts see it differently.
A legal professional who requested anonymity said, "Judging by Shin's recent moves and the term of the four-party alliance, it appears that Shin's side is setting a new board ahead of the expiration of the four-party alliance agreement slated for 2029."
◇ First watershed at the March shareholders meeting: "Will aim to seize the board"
After expanding equity in the holding company Hanmi Science, Shin's next move is likely to be a reshuffle of Hanmi Pharmaceutical's board.
At the Hanmi Pharmaceutical shareholders meeting scheduled for late Mar., the terms of four of the 10 board members, including CEO Park Jae-hyun of Hanmi Pharmaceutical, will expire. They are inside directors CEO Park and Executive Director Park Myung-hee, and outside directors Yoon Young-gak, CEO of Pavilion Asset Management, and Yoon Do-heum, executive vice president for medical affairs at CHA University.
While it is hard to slice the internal dynamics of the boards cleanly, considering the current situation in which the alliance between Shin and the mother and daughter has cracked, insiders assess that the Hanmi Science board could be configured 6–4 in Shin's favor, while the Hanmi Pharmaceutical board is somewhat unfavorable to Shin.
The Hanmi Science board currently consists of 10 members: CEO Kim Jae-gyo; four inside directors (Lim Joo-hyun, Lim Jong-hoon, Shim Byung-hwa, Kim Sung-hoon); three outside directors (Choi Hyun-man, Kim Young-hoon, Shin Yong-sam); and two other non-executive directors (Bae Bo-kyung, Shin Dong-kuk).
Shin has already indicated opposition to CEO Park Jae-hyun's consecutive term. With Shin's additional purchases of Hanmi Science equity, Shin's side now holds 29.83% of Hanmi Science, including Hanyang Precision Co.'s 6.95% stake.
Hanmi Science holds about 41.42% equity in Hanmi Pharmaceutical, giving it a structure capable of exerting significant influence over Hanmi Pharmaceutical. The Hanmi Science board can place on the agenda a "Hanmi Pharmaceutical board shareholders meeting agenda" for Hanmi Pharmaceutical's shareholders meeting, at which point Hanmi Science's board discusses whether to exercise its voting rights.
Even without a board resolution, the CEO of Hanmi Science can, at their discretion, decide on Hanmi Science's exercise of voting rights over Hanmi Pharmaceutical.
However, given that current Hanmi Science CEO and Vice Chair Kim Jae-gyo is a professional manager recommended by Shin Dong-kuk and appointed by agreement of the four-party alliance, observers say it would be difficult to exercise voting rights unilaterally without the alliance's consent.
Combining Shin's side's 8.67% holding in Hanmi Pharmaceutical shares with Hanmi Science's 41.42% equity in Hanmi Pharmaceutical brings the total to 50.09%.
If Hanmi Science's voting direction on Hanmi Pharmaceutical's shareholders meeting agenda is decided in line with Shin's wishes, Shin could more easily appoint new inside and outside directors at Hanmi Pharmaceutical with voting rights amounting to 50%. Director appointment agendas pass with a majority of voting rights of shareholders present and at least one-fourth of the total issued shares.
A person familiar with Hanmi Pharmaceutical's internal affairs said, "Shin is now pouring efforts into cutting off the influence of the group's mother and daughter and blocking CEO Park's consecutive term," adding, "Former Hanmi Pharmaceutical employees believe Shin intends to leverage equity to complete a board friendly to him and install a new professional manager more receptive to his influence."
◇ Clash between major shareholder influence and the independence of professional managers
With the conflict between the major shareholder and professional managers already escalating, some predict that Hanmi Pharmaceutical could become a test case for the current administration's amended Commercial Act. Under the amended framework, it could show the direction of corporate governance and how effectively boards can check the unilateral power of major shareholders.
Jung Chung-rae, leader of the Democratic Party of Korea, said of the main purpose of the amended Commercial Act that passed the National Assembly last year, "The first step to dispel distrust that controlling shareholders siphon off corporate interests through the board like picking dried persimmons is to make a 'rubber-stamp board' into a 'responsible board.'"
Currently, the holding company Hanmi Science and the core operating company Hanmi Pharmaceutical have, on the surface, built a professional management system. However, considering Shin's equity and actual activities, multiple group employees explained that the structure allows him to exert strong influence not only on the holding company but also on subsidiaries.
After the founder family's management control dispute concluded with the four-party alliance's victory, Vice Chair Kim Jae-gyo and Hanmi Science Executive Vice President (CFO) Shim Byung-hwa, who were brought in, are pushing for performance improvement and organizational stability under the confidence of Chair Shin Dong-kuk. But they face the task of balancing the major shareholder's influence with their independence as professional managers.
Kwon O-in, Director-General of the Economic Policy Team at Citizens' Coalition for Economic Justice (CCEJ), said, "In corporate control disputes, if one side's equity is overwhelmingly large, reshuffling the board is easy once procedural legitimacy is secured," adding, "However, if a professional manager on the opposing side in conflict has strong managerial capabilities and solid internal confidence, it can work against establishing procedural justification for director replacement, leading to behavior that creates blemishes and noise about the professional manager."
He predicted, "If the management control dispute surfaces, whether there is a white knight for the owner family (the mother and daughter) and the possibility of intervention by the National Pension Service could determine the direction of the dispute."