As Huons Group decided to merge subsidiary Huons Lab into Huons under holding company Huons Global, minority shareholders of Huons Global and an investors' alliance submitted a petition to financial authorities asking them to investigate the group's merger process. The shareholders' alliance is also moving to hire an attorney, raising the likelihood that the conflict between the company and shareholders will expand into a legal dispute.
According to the Huons Global minority shareholders' alliance and the investors' alliance on the 21st, they submitted a petition the previous day to the Financial Supervisory Service, the Financial Services Commission, the National Assembly, and others titled "A call for a strict investigation into a backdoor affiliate merger that circumvents the amended Commercial Act and is accompanied by alleged leaks of nonpublic information."
In the petition, they said, "This merger is a typical expedient structure that exploits a regulatory blind spot to transfer the wealth of ordinary shareholders of the parent company to the controlling family and a specific financial investor (FI)," and added, "There is a suspicion that the merger ratio was distorted by artificially shaking the share prices of the two companies through an internal information leak before the official disclosure."
In particular, the minority shareholders took issue with the fact that after rumors about the merger spread on the 11th–12th, Huons Global's share price plunged while the share price of Huons, the merger entity, surged.
They argued, "With Huons' share price rising, Huons' value was overestimated in calculating the merger price, and as a result Huons Global, which owns Huons Lab, suffered a disadvantage by being allocated a lower equity ratio of new shares from the merger."
They continued, "Given the potential use of material nonpublic information and possible market manipulation, a rigorous investigation by the special judicial police and the Korea Exchange (KRX) is necessary."
They also raised issues of procedural legitimacy. Citing Ministry of Justice guidelines, the minority shareholders' alliance noted, "Each party to the merger needs an independent special committee, but Huons Lab has no records of establishing or operating one."
They questioned the valuation method for Huons Lab as well. They argued, "Despite being a loss-making research entity with impaired capital, it was valued at 129 billion won by reflecting projected future revenue through 2041, and the external evaluation period was only about two weeks," adding, "It is a sloppy, hasty valuation tailored to the value desired by the controlling shareholder."
Earlier, on the 18th, Huons held a board meeting and approved a proposal to merge unlisted affiliate Huons Lab into Huons. The merger ratio is 1 to 0.4256893, and the effective date is Aug. 18. 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 proposal.
Among shareholders, discontent is growing that the merger structure itself is unfavorable to Huons Global shareholders. Huons Lab is currently an unlisted subsidiary of Huons Global, and if it is merged into affiliate Huons, a significant portion of Huons Lab's future growth value could be transferred to Huons shareholders.
The market sees a possibility that corporate value could jump significantly if the technology licensing of the hyaluronidase-based subcutaneous (SC) injection platform owned by Huons Lab materializes. In that case, the potential value of Huons Lab currently held by Huons Global would be diluted, and there are concerns that a substantial portion of the increased excess value could accrue to shareholders of Huons, the merged entity.
The company's position is that the merger is a decision to secure future growth engines by combining Huons' financial resources and business capabilities in the process of pursuing the technology licensing of Huons Lab's hyaluronidase-based SC formulation conversion technology.
It also judged the merger price to be appropriate because the merger ratio in this case falls within the evaluation range calculated by external appraiser Ichon Accounting Corporation. Huons also decided to grant appraisal rights to shareholders opposing the merger.
However, the shareholders' alliance argued, "Judging by recent cases in which financial authorities strongly demanded corrections, the fairness of a merger is not ultimately secured by an external valuation opinion alone."
According to cases presented by the shareholders' alliance, NP and WYSIWYG Studio submitted securities registration statements with external evaluators' opinions attached, but were asked to correct them due to reasons including failure to establish a special committee, lack of independence in appointing external experts, and insufficient information provided to minority shareholders.
In the Hyundai G.F Holdings–Hyundai Home Shopping transaction, there was a correction request to "describe more clearly whether directors fulfilled their duty of loyalty," and in the E-MART–Shinsegae Food comprehensive share exchange case, the FSS proceeded with repeated correction demands to protect minority shareholders, according to the shareholders' alliance.
The shareholders' alliance also strongly protested that Huons "passed over" shareholders by holding an investor relations (IR) session for institutional investors and others before communicating with shareholders.
At an IR briefing the previous day, Huons Group explained the status of Huons Lab's technology transfer and the future direction of governance restructuring. Some shareholders pointed out that "explanations to capital market participants were prioritized over communication with ordinary shareholders."
Financial authorities are also closely watching the controversy surrounding the merger. The FSS said it would comprehensively review any illegality and compliance with shareholder protection procedures once the company submits its merger registration statement.
Meanwhile, the shareholders' alliance is considering selecting a representative shareholder and hiring an attorney. As of 10 a.m. that day, it had secured 11.78% equity through the online shareholder activism platform "ACT." The number of shares gathered is 1,491,931, and the number of participating shareholders is 432. The gathered amount calculated by ACT is 48.49 billion won.