BGF Retail’s chairman and chief executive Hong Suk-jo
The plan by South Korea’s convenient store-strong BGF Retail Co. to split into investment and operating entities is likely to be challenged as the move would only benefit the family members while undermining the interests of retail shareholders.
On Thursday, BGF Retail - operator of convenience store chains in Korea - announced a plan to demerge on a split ratio of 65:35 between the holding and operating entities. The ratio would allow major shareholders to enhance their control in the group through their ownership in the holding company while giving little room for minority shareholders to reap returns and say in business affairs.
BGF Retail’s plan to transform into a holding company structure came as baffling as there would be little gain from the shift. Samsung Group, for example, carried out reorganization for hereditary succession and Hyundai Motor Group and Hyundai Heavy Industries Group to simplify their complex cross-shareholder structures.
The disclosure of the spilt ratio made things clear.
The stock split ratio between holding company BGF that will be in charge of overall investment and operating company BGF Retail that will oversee main businesses is set at 65:35. According to Financial Supervisory Service data, the largest shareholder of BGF Retail is its chairman and chief executive Hong Suk-jo who owns 31.8 percent of the company. His ownership increases to 55.5 percent when combing the stakes of other family members. Only 0.001 percent of BGF Retail shares are treasury stock, which means that if the company splits into two entities, the stake would go to the individual large shareholders.
To meet with holding requirements, the holding company must own 20 percent or more in a listed subsidiary.
Due to its pitiful treasury stockholding, the holding company would have to buy shares back from Hong and other large individual shareholders. A 55.5 percent at BGF’s stock price of 128,000 won ($113.9) on Friday would value 1.2 trillion won. The stock value would be reappraised before relisting on Dec. 8.
The move is likely to confound retail shareholders as they would be left with more shares of the holding entity BGF whose business plans are yet uncertain.
In response to the controversy, BGF Retail said that it applied net asset to the split ratio, which is generally the case when demerging a company. Unlike merger ratio, a split ratio is not regulated by commercial, tax, or capital market laws, allowing a company to adjust the ratio to its favor.
By Yoon Jin-ho and Lee Yong-gun
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