Huons Global(084110) put an end to the merger controversy for now by halting the merger between its subsidiary Huons Lab, which holds a subcutaneous (SC) conversion platform technology, and Huons(243070). Now the market's attention is on the Huons Group's succession and the commercialization of Huons Lab's technology. In particular, whether Huons Lab succeeds in out-licensing the SC conversion platform "Hi-Diffuse" is the key variable.
The Huons Group said on the 26th that its board resolved to terminate the merger agreement between Huons and Huons Lab. Accordingly, all extraordinary shareholders' meetings that had been scheduled to ask for approval or disapproval of the new share issuance and the merger were canceled.
◇ Raising the white flag amid shareholder backlash… Succession plan also checked by merger withdrawal
The company cited shareholder opposition and a drop in the stock price as the reasons for withdrawing the merger. After news of the merger broke in May, Huons Global's stock price plunged and its market capitalization was cut roughly in half. On the morning of the 27th, the day after the withdrawal was reported, Huons shares fell as much as 9% intraday, while Huons Global shares jumped nearly 30%.
The merger would have transferred Huons Lab, a core growth asset under Huons Global, to Huons, the operating company. As the possibility of out-licensing for the SC conversion platform "Hi-Diffuse" that Huons Lab is developing was raised, shareholder backlash also grew. The reasoning was that handing over the holding company's core asset to an operating company at a time when out-licensing is being discussed could harm the interests of Huons Global shareholders.
Some shareholders claimed the merger was a "backdoor listing by expedient means," called for a probe by financial authorities, and organized a signature drive urging the rejection of the securities registration statement.
Despite shareholder opposition, suspicions also arose that the Huons Group pushed the merger to speed up a succession of management control to Yoon In-sang, executive vice president of Huons Global and eldest son of Huons Group Chairman Yoon Sung-tae. If Huons Lab's out-licensing succeeds, the corporate value of Huons Global, the group's holding company, could rise significantly. Some saw this as an attempt to prepare for succession by organizing the group's core assets and governance before the corporate value rises. As corporate value increases, the burden from future equity gift and inheritance could also grow.
These suspicions also stemmed from changes in the second generation's equity. At the end of last year, Chairman Yoon Sung-tae gifted most of his Huons equity to his eldest son, Executive Vice President Yoon In-sang, and Yoon's Huons equity rose from 0.01% to 3.38%, making him the largest individual shareholder after Huons Global. Coincidentally, right after Yoon became a major shareholder of Huons, a merger was pushed to hand over Huons Lab, the holding company's core asset, to Huons.
An industry official said, "Before the value of Huons Lab surges through out-licensing, deciding which corporation will hold the asset is an important issue from a succession standpoint," adding, "If you leave the core asset in the holding company, the holding company's value could rise later, increasing the burden of equity succession for the largest shareholder. But if you move the asset to Huons, where the second generation has already secured equity, you can expect the effect of boosting the value of the Huons equity the second generation holds."
The company flatly denied claims that the merger push was related to a succession of management control. However, with the withdrawal of the merger, the succession plan using the merger has been checked for now. The market is watching how the Huons Group will organize its governance and proceed with succession.
◇ Betting on technology commercialization instead of a merger… "Hi-Diffuse" out-licensing is the key
It is a burden that Huons Lab is a research and development–focused company without clear revenue yet. It posted an operating loss of 10.2 billion won last year and is currently in a capital impairment state. With tighter market regulations on duplicate listings, raising funds through an independent listing will not be easy.
A company representative said, "Although the merger fell through, the need for financing is substantial to continue Huons Lab's research and development," adding, "We are currently reviewing various financing options at the company level."
Ultimately, to raise corporate value, Huons Lab needs results in commercializing its technology. The key is the subcutaneous (SC) conversion platform "Hi-Diffuse."
Hi-Diffuse is a platform that converts drugs administered by intravenous (IV) infusion into subcutaneous (SC) formulations. It could potentially expand its scope of application to a range of next-generation biopharmaceuticals, including antibody drugs and antibody-drug conjugates (ADC), as well as nucleic acid therapeutics, bispecific antibodies, and proteolysis targeting chimeras (PROTAC).
In particular, whether out-licensing is concluded is expected to be the key variable for gauging Huons Lab's corporate value. Huons Lab is reportedly negotiating out-licensing terms with two global pharmaceutical companies.
In the investment banking (IB) industry, multiple global pharmaceutical companies are said to be pursuing material transfer agreements (MTA), and there is talk that concrete results could come as early as this year. The view that contract talks have become quite specific is bolstered by reports that Executive Vice President Yoon In-sang shared draft contract terms under discussion with a global pharmaceutical company and the expected contract size with affiliates' executives.
Out-licensing is also important for financial investors (FI) in terms of recouping their investment in Huons Lab. Korea Development Bank (KDB), VS Investment, and J&PE invested in Huons Global, giving high marks to the growth potential of Huons Lab's SC conversion platform.
However, when the merger plan to transfer Huons Lab to Huons emerged, they reportedly opposed it out of concern that the core asset they had expected at the time of investment would be taken outside the holding company. The Huons Group is said to have presented separate exit plans to win their consent for the merger.
An IB industry official said, "With the merger off the table, results from commercializing Huons Lab's technology have become important for FIs to recoup their investments," adding, "Only when there are commercialization results, such as out-licensing of Hi-Diffuse, will FIs move to make follow-on investments or to exit."