Huons Group has decided to merge Huons Lab, a subsidiary of holding company Huons Global, into Huons. However, with backlash from minority shareholders mounting, turbulence is expected during the Financial Supervisory Service review process ahead.
According to the Financial Supervisory Service's electronic disclosure system on the 18th, Huons held a board meeting that day and approved an agenda to merge unlisted affiliate Huons Lab. The surviving company is Huons, and the dissolved company is Huons Lab. The merger ratio between Huons and Huons Lab is 1 to 0.4256893. The merger date is Aug. 18, and the scheduled listing date for the new shares is Sept. 4. Huons plans to hold an extraordinary shareholders meeting on July 16 to approve the merger agenda.
Through this merger, Huons will deliver 3,825,327 new merger shares to Huons Lab shareholders. The company said that while this will lead to changes in equity ratios, there will be no changes in management control such as a change in the largest shareholder.
◇ "Securing funds for HyDiffuse R&D"… momentum builds ahead of technology deal
Huons said the purpose of the merger is "to ease profitability downside pressure stemming from a lack of new drug pipelines and the government's drug pricing system overhaul, and to pursue the build-out of a biopharmaceutical value chain and the strengthening of research and development (R&D) capabilities."
Huons Group said that prior to the merger decision, it set up and operated a special committee that included external experts in line with Ministry of Justice guidelines. The special committee reviewed the legitimacy of the transaction purpose, the fairness of deal terms, and the appropriateness of procedures, and concluded that pushing ahead with the merger was reasonable, it said.
Huons plans to secure future growth drivers by adding Huons Lab's biopharmaceutical pipeline to its existing synthetic drug–focused pipeline. It also plans to pursue certification as an innovative pharmaceutical company by strengthening research and development capabilities.
This also ties into the strategy to respond to the government's drug pricing system overhaul. According to the "National Health Insurance drug pricing system improvement plan" released by the Ministry of Health and Welfare in Mar., innovative and semi-innovative pharmaceutical companies can receive favorable pricing benefits. Innovative pharmaceutical companies can receive prices as high as 49% of the original drug price—higher than the existing generic price standard of 45%—for up to four years. When new generics are listed, innovative companies receive up to 60% pricing, and semi-innovative companies receive up to 50%.
Huons Lab is a biotech company with the platform technology "HyDiffuse," which converts intravenous (IV) formulations into subcutaneous (SC) injections. Based on a formulation-switch platform using human-derived hyaluronidase, it is also said to be pursuing a co-development deal to convert global pharma companies' antibody-drug conjugates (ADC) into SC formulations.
Huons expects that, through this merger, Huons Lab will be able to secure stable funding through the technology transfer stage. It is also aiming for research and development synergies and cost savings by leveraging Huons' clinical staff, manufacturing facilities, and sales organization.
◇ Backlash spreads among Huons Global shareholders… possibility of FSS sanctions
However, the market expects notable shareholder backlash over the merger. As of 7 p.m. that day, the Huons Global minority shareholders' alliance had secured more than 11.33% equity via the online shareholder activism platform "ACT."
Some shareholders have already filed complaints with the National Assembly and the Financial Supervisory Service, and the industry notes that the Financial Supervisory Service could effectively request a reconsideration by demanding corrections to the securities registration statement.
Shareholders opposing the merger can notify their dissent from July 1–15, and they can exercise appraisal rights from July 16 to Aug. 6.
Whether financial investors (FI) consent during the merger process has been cited as a key variable in this transaction.
Financial investors such as Korea Development Bank (KDB), VS Investment, and J&PE are said to have joined investment in Huons Global, highly valuing Huons Lab's growth potential for its SC conversion platform.
However, these investors had opposed the merger, concerned that if Huons Lab, a Huons Global subsidiary, were folded into Huons, the existing structure for recouping their investment could change.
Recently, though, Huons proposed separate safeguards related to investment recovery, shifting the negotiations. The industry believes that after an agreement was reached to guarantee investors' exit routes to a certain extent, FIs reversed course. As a result, investors once seen as the biggest swing factor—having planned to vote against the original merger plan—recently shifted to support.
Song Soo-young, CEO of Huons, said, "With this merger, Huons will secure integrated capabilities from pharmaceutical and biopharma new drug research and development through sales," adding, "We will lay the foundation to leap forward as a global pharma-bio company and, ultimately, strengthen our corporate fundamentals to maximize shareholder value."
Meanwhile, on the 22nd of last month, Huons also disclosed that it would pursue a small-scale merger to absorb its 100% subsidiary Huons Life Science to bolster competitiveness and expertise in its pharmaceutical business and improve management efficiency.
Huons Group plans to hold an investor relations (IR) session on the 20th for institutional investors and others to explain the progress of Huons Lab's technology transfer deal and the direction of future governance restructuring.