This article was published on May 15, 2025, at 10:39 a.m. on the ChosunBiz MoneyMove site.
CJ has completely acquired its subsidiary CJ Olive Young by purchasing the remaining 11% equity it had entrusted to Shinhan Financial Group. As a result, there are expectations in the market that the merger between CJ and CJ Olive Young may accelerate.
From the perspective of the CJ Group's owners, it is advantageous to assess the corporate value of CJ Olive Young, which has a high equity of the third generation of owners, when promoting the merger between the two companies.
However, this conversely implies a loss for CJ shareholders. To achieve this, it is necessary to persuade the 'big hand' National Pension Service, which holds over 10% of CJ's equity, raising the possibility of controversy given that CJ Olive Young is a subsidiary of CJ.
In the meantime, the market has consistently pointed out that when merging between parent companies, the value of the subsidiary equity held by the parent company should be somewhat reflected. If applied to the CJ Group, it can be argued that the equity value of CJ Olive Young should be reflected in the corporate value of the parent company CJ. In other words, complications may arise regarding the merger ratio.
◇ CJ Olive Young exercises call option after a year… Merger clock seems to speed up
According to investment banking (IB) industry sources on the 15th, CJ Olive Young acquired 11.3% of the equity that had remained with Korea Beauty Pioneer (a special purpose company established by Shinhan Bank and Shinhan Investment Corp.) on the 9th.
As a result, CJ Olive Young became a non-listed company with major shareholders, including CJ (51.15%), Lee Sun-ho, the eldest son of Chairman Lee Jae-hyun (11.04%), Lee Jae-hwan, the chairman's younger brother (4.64%), and Lee Kyung-hoo, the chairman's eldest daughter (4.21%), holding 22.57% of its own shares. The stakes of CJ and the owner's family, along with its own shares, account for 99.39% of the total issued shares.
CJ Olive Young had previously entered into a call option contract allowing it to acquire 11.3% of the equity held by Korea Beauty Pioneer within three years. Then, it early exercised the call option and purchased the shares for its own account after one year.
If the own shares are cancelled, the equity ratio of CJ and the owner's family will increase. Assuming all of CJ Olive Young's 22.57% own shares are completely cancelled, CJ's equity ratio will rise to 66.1%. The equity ratios of siblings Lee Sun-ho and Lee Kyung-hoo are estimated to be 14.2% and 5.4%, respectively, while Lee Jae-hwan's equity ratio will increase to 6%.
As CJ Olive Young's acquisition of its own shares is completed earlier than scheduled, the market anticipates that the merger clock for CJ and CJ Olive Young may speed up. The merger between CJ and CJ Olive Young is recognized as a very likely succession scenario. Since the equity ratios of siblings Lee Sun-ho and Lee Kyung-hoo are only 3.2% and 1.47%, respectively, if CJ Olive Young, where the siblings hold relatively more equity, is absorbed into CJ, it would naturally enhance their control over CJ.
From the owner's family's perspective, it is crucial to enhance the corporate value of CJ Olive Young. The merger ratio must favor CJ Olive Young in order to maximize the practical benefits from the merger, that is, the equity ratio increase effect for the third generation of owners.
Some suggest that if CJ Olive Young is recognized for its high corporate value before the merger and attracts external investment, this could naturally justify a favorable merger ratio. According to the IB industry, CJ Olive Young previously rejected all kinds of collaborations, including investment proposals and license agreements from major investors in the Middle East last year. If, at this point, it attracts foreign capital such as from the Middle East and is recognized at a high valuation, this could be used as a basis for determining the merger ratio. The likelihood of CJ Olive Young's first-quarter performance stagnating also increases the probability of attracting investment.
On the other hand, there are views questioning whether they would seek external investment again after already arranging the equity structure neatly for the merger. There are also criticisms that if they receive investments at a high valuation ahead of the merger, their intentions may appear overtly.
From the perspective of external investors, since investment in CJ Olive Young through its merger with CJ could convert to CJ shares, they may not be proactive about investing in the current situation.
◇ “If the corporate value of CJ Olive Young is 5 trillion won, 2.5 trillion won should be reflected in CJ”
A significant obstacle to determining the corporate value of CJ Olive Young could be the presence of the National Pension Service. As of the end of March, the National Pension Service holds 10.63% of CJ's equity. Its voting equity percentage exceeds 12%.
An IB industry representative noted, “If the merger ratio is set too unfavorably for CJ in this situation, the National Pension Service might vote against the merger, claiming it harms the interests of minority shareholders.”
CJ and CJ Olive Young are in a parent-subsidiary relationship, so the National Pension Service has a stronger justification to oppose the merger, according to this representative. Currently, the market views CJ Olive Young's corporate value as exceeding 5 trillion won, even when estimated conservatively. Assuming it is 5 trillion won, it is claimed that 2.55 trillion won should be reflected in CJ's valuation based solely on the equity value of Olive Young (51.15%).
Therefore, the corporate value of CJ cannot fall below a certain level, and if it is assessed low without considering the value of Olive Young's equity, there is a high probability that the National Pension Service will oppose the merger.
In fact, when Samkwang Glass attempted to merge with its subsidiaries Gunjeong Energy and I-Tech Construction in 2020, it was pointed out that the equity value of Gunjeong Energy was not reflected in Samkwang Glass. This led to a shareholder activism campaign challenging the issue, and the National Pension Service accepted the claims and opposed the merger.
Ultimately, Samkwang Glass revised the merger ratio based on net worth instead of stock price, marking the first case in Korea where a listed company set the merger value based on net worth.