GL Chemical (3)
Anchor Park Young-ki asked, looking genuinely startled.
“Fraud... isn’t that a little too harsh a word?”
“Harsh or not, it’s the truth. The petrochemical division of GL Chemical is worth, at most, five trillion won. And if you apply the same discount to the GL Entech shares held by GL Chemical that the market applies to the GL Chemical shares held by GL, then the company’s market cap won’t be worth much more than thirty trillion won. In that case, the stock could very well collapse to less than half its current price.”
“So because the shares of subsidiaries held by GL, the holding company, are valued at around thirty percent, the GL Entech shares held by GL Chemical could be valued the same way.”
“That’s right.”
“Then let me ask you this. If GL Chemical’s management knows all this and still pushes ahead with the GL Entech listing, couldn’t that be considered a breach of duty, one that damages shareholders’ property?”
Kim Beom-seok nodded.
“Yes. That’s why advanced countries prohibit this kind of subsidiary listing by law, to protect shareholders from being harmed. If you look at the U.S. stock market, it’s common for only the holding company itself to be listed.”
“Then do you think Korea should move in that direction as well?”
“If the National Assembly doesn’t make a law to regulate it, situations like this will keep repeating themselves.”
“I see. Thank you for your thoughts.”
Anchor Park looked straight into the camera and said,
“Everything discussed today is solely Kim Beom-seok’s personal opinion. Whether GL Chemical will truly be harmed by the GL Entech listing is something the public will decide for themselves. Thank you for watching.”
* * *
The effect of the broadcast was astonishing.
Until then, terms like holding-company discount and double counting had been unfamiliar to most people, but now the entire country knew them.
* * *
Yeouido, the GL Chemical headquarters.
In front of the building, small shareholders were staging a fierce protest.
“Withdraw the GL Entech listing!”
“Withdraw it! Withdraw it!”
“Compensate GL Chemical shareholders for their losses!”
“Compensate us! Compensate us!”
Protests outside a major corporation were hardly rare. Under normal circumstances, they would not have been worth a second glance.
The problem was that one of the protesters was a three-term member of the National Assembly.
Assemblyman Namgoong Seok had even pitched a tent and was holding a sleepless sit-in, demanding a meeting with company officials.
In the end, GL Chemical had no choice but to accept the request, and a roundtable discussion was held inside headquarters. The sight of small shareholders packed shoulder to shoulder in the main auditorium looked almost exactly like a shareholders’ meeting.
The GL Chemical representative was Director Min Seong-gu.
As soon as the introductions were over, Assemblyman Namgoong Seok fired off a question.
“Why on earth did you split up a perfectly healthy company?”
“Because running both businesses at once was undermining our specialization and efficiency.”
“I don’t follow. If GL Chemical was in such a weak state in terms of specialization and efficiency, how did it grow the battery business into a world-leading player? You had both businesses doing well all this time, so why split them now?”
“As I said, it was to improve specialization and efficiency—”
Namgoong Seok cut him off.
“Until now, the battery division was in the red. You used the money earned by petrochemicals to cover those losses. Because of that, operating profit was barely there, which meant employees’ wages could stay low and shareholder dividends were almost nonexistent. But now that the battery business has turned profitable, you carried out a physical spin-off so you wouldn’t have to share the gains with existing shareholders, didn’t you?”
Director Min broke into a sweat.
“That’s a misunderstanding. The physical spin-off was approved by the shareholders at the general meeting.”
In fact, the hardest part of a physical spin-off and subsequent listing was the spin-off itself.
A physical spin-off was not something management could do at will; it required shareholder approval. The conditions were that more than one-third of all shareholders had to attend the general meeting, and more than two-thirds of those present had to vote in favor.
If the small shareholders had united in opposition, the spin-off would have been blocked.
But...
“We checked. Most of the small shareholders didn’t even know a shareholders’ meeting was being held, let alone what the agenda was. Attendance barely cleared sixty percent, and of that, forty-four percent came from GL, the largest shareholder, and the National Pension Service, the second largest. So even though institutions and foreign investors voted against it in unison, the resolution still passed with about seventy percent approval. Under those circumstances, can you really claim the physical spin-off reflected the small shareholders’ wishes?”
Director Min Seong-gu said, as if trying to excuse himself,
“Through this listing, GL Entech will raise a massive amount of capital and invest it all in expanding its factories. That will clearly benefit shareholders.”
“Then why doesn’t GL Chemical raise the capital and carry out the investment itself? Cancel the GL Entech listing immediately, let GL Chemical raise the funds through a rights offering, and then invest in GL Entech. The shareholders would agree to that too.”
At once, the small shareholders shouted in unison.
“Exactly!”
“We agree!”
“Abandon the GL Entech listing and let GL Chemical do a rights offering!”
Director Min looked flustered.
“If we did that, investors would hate it, so...”
“So it’s fine to do things shareholders hate, but not things investors hate? Who exactly is GL Chemical supposed to serve?”
“Since the listing is already in progress, it’s hard to stop now.”
“If you insist on pushing it through, then shouldn’t you come up with measures to compensate the existing shareholders for their losses?”
“We are considering various options on that front.”
You had to take a merchant’s words with a grain of salt.
Saying they were considering various options was just another way of saying they were planning to do nothing.
“And what exactly are those options you’re considering?”
“First, we plan to strengthen our core petrochemical business to increase both sales and profits. In addition, we intend to redistribute any dividends we receive from GL Entech back to GL Chemical shareholders. That should help ease the double counting issue to some extent.”
“But didn’t you just say GL Entech would invest all its capital into expanding production? If there’s no profit to begin with, there’s no dividend. And if GL Entech doesn’t pay dividends, then your promise of redistribution is meaningless, isn’t it?”
“W-well, yes, but...”
“Why not just hand GL Entech shares to GL Chemical shareholders as an in-kind dividend?”
Director Min was shocked by the suggestion.
“What? What do you mean by that?”
“GL Chemical shareholders have put up with the risks and losses of a new business all this time as investors. If you absolutely must list GL Entech, then there should be proper compensation for GL Chemical shareholders’ losses. Even after the listing, GL Chemical will still own eighty percent of GL Entech. If twenty percent of that is distributed to shareholders in kind, GL Chemical would still hold sixty percent, so there’d be no problem maintaining control, would there?”
Director Min Seong-gu stammered,
“Th-that’s impossible...”
“Why is it impossible? Isn’t this something the board could fix by amending the articles of incorporation? The shareholders would support it enthusiastically too.”
Then the small shareholders shouted all at once.
“Exactly!”
“We support it!”
“Give us GL Entech shares too!”
“Distribute the shares in kind right now!”
“If necessary, I’ll back it with legislation in the National Assembly. Or perhaps...”
Namgoong Seok glared at Director Min.
“It’s not that it’s impossible. It’s that you don’t want to do it, isn’t it?”
“...”
Of course they didn’t want to.
From the start, the purpose of a physical spin-off followed by a listing was to avoid sharing the company’s gains with the small shareholders of the existing business.
If GL Chemical kept the GL Entech shares, they would remain part of the controlling family’s assets. The moment those shares were handed out to shareholders, they would become the property of the small shareholders instead.
From the company’s perspective, it was something they had no real reason to do.
“W-we’ll do our utmost to improve shareholder value.”
* * *
Despite all the words thrown around, GL Chemical’s position had not changed in the slightest.
The GL Entech listing would proceed as planned, and existing shareholders would receive no special benefit whatsoever.
Namgoong Seok raised his voice in the National Assembly.
“The core issue here is not the physical spin-off, but the listing of a subsidiary. In the end, this only sacrifices small shareholders for the sake of an owner who wants to control a company with as little money as possible. The National Assembly must quickly restrict listings after physical spin-offs and prepare legislation requiring subsidiaries to compensate existing shareholders with stock when they are listed.”
Splitting off a business to list it, or creating a subsidiary under a child’s name and then nurturing it through insider deal-making before listing it later—that was the sort of thing every chaebol had done countless times.
If losses came, they could be dumped on the shareholders. If profits came, the company could be listed and everyone in control could cash out for a fortune.
But now some assemblyman was trying to put a stop to it. If the bill actually passed, every company in the country would be affected.
As expected, the chaebols erupted in protest all at once.
“First you tell us to convert into holding companies, and now you want to regulate us like this?”
“A law restricting listings? Even communist states wouldn’t do that!”
“This is the worst kind of law, one that tramples corporate autonomy.”
“This kind of anti-business behavior is exactly why companies leave for overseas markets.”
“If this bill passes, we’ll have no choice but to consider listing overseas.”
The Federation of Korean Industries, speaking for the chaebols, released an official statement.
“Regulation on physical spin-offs and subsidiary listings will dampen business activity and investment. There is also concern about discrimination compared with companies listed overseas. If such unfair regulations drive companies out of the country, the economy will inevitably suffer as well, so we respectfully ask for caution in imposing these restrictions.”
But the public’s reaction was cold.
— What the hell is this bullshit?
— That’s the most ridiculous thing I’ve heard all year.
— Don’t the U.S. and Japanese stock markets mostly list only the holding company?
— Advanced countries mostly prohibit listings after physical spin-offs! Korea is the only place pulling this crap, so why are you whining about discrimination?
— If the company was funded with your own money, I wouldn’t care whether you spin off a subsidiary or list it. But why are you using shareholders’ money, and then listing it just because it finally looks profitable?
— Physical spin-off + listing = keeping the controlling shareholder’s stake intact while using a rights offering.
— So if you need capital, do a rights offering! You don’t want your own stake diluted, so you’re just trying to dilute the small shareholders’ stakes instead, right?
— In other words, the shareholders are footing the bill for the owner’s control premium.
— Why should we take the loss just so you can protect your control?
— Why the hell should small shareholders have to strain themselves while the chaebols take a dump?!!!
* * *
With the chaebols pushing back so strongly, the political world was thrown into awkward silence.
The ruling New Korea Party and the Blue House tried to keep their distance, avoiding any comment if possible. They didn’t want to get dragged into the controversy for no reason.
But the Our People Party couldn’t do that.
Because Namgoong Seok was running amok.
The party was being flooded with support and protests alike.
When controversy erupts, the best strategy is often to pretend you know nothing.
No matter which side you choose, backlash is bound to come.
But because of Namgoong Seok, Im Chang-shik, as party leader, had been cornered into having to take a position one way or another.
No, seriously—why the hell are you doing this to me?