This article was published on Feb. 10, 2025, at 9:11 a.m. on the ChosunBiz MoneyMove site.
The merger between Arivbio, a company developing dementia treatments, and Solux, a KOSDAQ-listed lighting company, has been stalled at the Financial Supervisory Service's threshold for nearly six months. Analysts suggest that Arivbio's attempts to bypass the listing process through Solux, after multiple failures to qualify for technology-based listing, may not be condoned by financial authorities.
On the 10th, according to investment banking (IB) industry sources, Solux announced it would postpone the schedule for an extraordinary shareholders' meeting, which was to include the approval of the merger with Arivbio as a key agenda item. The announcement stated that the record date for the closure of the shareholder register would change from the original 7th to the 28th. Initially, Solux had intended to hold the shareholders' meeting around six months ago, on Sept. 27, 2024, but the schedule has been postponed six times since then. Notably, from the fourth postponement, no specific date for the meeting has been indicated.
These corporations have received five requests from the Financial Supervisory Service over the past four months to correct the securities registration statement related to the merger. While even large corporations typically receive one or two correction requests, this number is not insignificant. Originally aiming to complete the merger within 2024, these corporations usually submitted corrections within a month. However, after receiving the fifth correction request on Dec. 30, 2024, they have yet to submit the corrected statement. Previously, on Aug. 9, 2024, Solux announced that it would merge with Arivbio, citing potential synergies in developing bio-lighting.
Why is the Financial Supervisory Service scrutinizing these corporations' merger so rigorously? Industry insiders pointed to the controversy over Solux's incorporation of Arivbio as an affiliated company, which emerged during the process. According to the advancement measures adopted since 2010, if a company is deemed to be engaging in a backdoor listing, it must undergo screening similar to the qualification examination for listing eligibility. Critics allege that the companies have employed so-called 'tricks' to avoid this. An unlisted company effectively becoming listed through a merger with a listed company qualifies as a backdoor listing.
In May 2023, Jeong Jae-jun, the CEO of Arivbio, purchased 1 million shares from Kim Bok-deok, then CEO of Solux, for 30 billion won. Subsequently, he participated in a paid capital increase and the issuance of convertible bonds worth 30 billion won, becoming Solux's largest shareholder. The following month, in June, Jeong began selling his Arivbio shares worth 40 billion won to Solux. Ultimately, Solux became the largest shareholder of Arivbio. In essence, Jeong used his Arivbio shares to acquire Solux, a listed company, with minimal personal funds and established Arivbio as an affiliated company.
In this process, Jeong has managed to evade the two key conditions that would classify the transaction as a backdoor listing. They are: ▲ the largest shareholder of the unlisted company changing to the largest shareholder of the listed company within one year prior to submitting the major report (submitted for merger approval at the shareholders' meeting), and ▲ as a result of the merger, the largest shareholder of the unlisted company changing to the largest shareholder of the listed company. Arivbio and Solux do not fall foul of these conditions, as the existing largest shareholder remains unchanged after the merger.
Another key condition, namely that 'if two or more of the unlisted company's assets, capital, or sales exceed those of the listed company' has also been resolved. After the change of the largest shareholder, Solux increased its total assets and capital through large-scale fundraising and both paid and unpaid capital increases. Consequently, Solux's total assets rose to 155.1 billion won from 160.1 billion won within a year of the acquisition, while its capital increased from 14.6 billion won to 17.7 billion won.
Given this situation, these corporations are avoiding the Financial Supervisory Service's close scrutiny that typically applies to backdoor listings. They stated, "As of the end of the previous year, Solux already had an advantage over Arivbio in terms of total assets and sales, so this alone does not qualify as a case of backdoor listing," adding that there are opinions linking unpaid capital increases to backdoor listings, but rather, they argued that the unpaid capital increase was a response to long-standing demands from shareholders during Solux's downturn.
Solux had previously increased its capital through a 14-fold unpaid capital increase on Dec. 14, 2023, growing its capital from around 800 million won at the end of 2022 to 14.6 billion won. This enabled Solux's capital to surpass that of Arivbio, which stands at approximately 11.6 billion won.
The market continues to cast a skeptical eye. In a context where even companies that have succeeded in technology-based listings have often faced deterioration, Arivbio has pursued technology-based listings in March 2023, following unsuccessful attempts in 2018 and 2022.
An IB industry source noted, "Although Solux is merging with Arivbio, the fact that the surviving company’s name is recorded as Arivbio indicates that Arivbio is the primary entity." They also pointed out that the relatively high valuation of Arivbio is a basis for concern. The merger ratio between Solux and Arivbio is set at 1 to 1.85, revised down from an initial 1 to 2.50 during the process of amending the securities registration statement several times.