Samsung Group has made a sudden announcement regarding its governance restructuring in the bio sector, and some in the industry interpret this restructuring in connection with the group's overall governance. By separating Samsung Biologics and Samsung Bioepis, it is believed that they have gained another 'card' that can be used to solidify the governance structure centered around Chairman Lee Jae-yong in the future.
Samsung Group has established a governance structure that generally flows as 'Chairman Lee Jae-yong → Samsung C&T or Samsung Life Insurance → Samsung Electronics → Samsung Biologics.' In this situation, the so-called 'Samsung Life Insurance Act,' which directly targets Samsung Life Insurance's stake in Samsung Electronics, was reintroduced in the National Assembly. This time, Samsung Group is able to seek ways to avoid weakening its control while also avoiding regulations by utilizing the equity of the newly established corporation separating from Samsung Biologics.
◇ The revived 'Samsung Life Insurance Act'... Does Samsung Life Insurance need to sell 18 trillion won worth of equity in Electronics?
According to investment banks (IB) and the financial investment industry on the 22nd, Samsung Biologics announced that it would establish a newly created company called 'Samsung Bioepis Holdings (tentative name)' by simply and humanly partitioning its subsidiary Samsung Bioepis.
The essence of this restructuring is to create a structure where, after partitioning Samsung Biologics, which is centered on the CDMO business of biopharmaceuticals, and Samsung Bioepis, which operates the biosimilar (copy drug) business, Samsung Bioepis will become a 100% subsidiary of Bioepis Holdings.
Samsung Biologics explained that this restructuring has a business purpose. It has been noted in the industry that having Bioepis under Biologics has been an obstacle to Bioepis's growth because a CDMO company is prohibited from developing new drugs independently. By completely partitioning Biologics and Bioepis, each company's business competitiveness can be strengthened.
However, some also view this restructuring of the bio governance as being linked to group-level governance issues.
Until now, Samsung Group has maintained a governance structure that connects Chairman Lee Jae-yong to 'Samsung C&T (Samsung Life Insurance) → Samsung Electronics → core affiliates.' The problem lies in the fact that Samsung Life Insurance is involved in this governance structure. Samsung Life Insurance holds an 8.6% stake in Samsung Electronics, which significantly exceeds Samsung C&T's stake of 5.01% in Electronics.
On the 17th, Rep. Cha Gyu-geun of the Rebuilding Korea Party proposed a revision bill referred to as the 'Samsung Life Insurance Act.' Similar bills had been introduced in the 19th, 20th, and 21st National Assemblies but were automatically discarded due to the end of the session, and now it has emerged again in this National Assembly.
The main thrust of the revision bill is to limit the stock holdings of subsidiaries held by insurance companies to 3% of total assets by evaluating them at market value instead of at acquisition cost. Currently, Samsung Life Insurance holds 8.6% of Samsung Electronics' stock. The acquisition cost is 540.1 billion won, but if evaluated at market value, it approaches approximately 27.84 trillion won (based on the closing price on the 22nd). Considering that Samsung Life Insurance's total assets were 319.8 trillion won at the end of last year, it is estimated that if this law passes, Samsung Life Insurance will be required to dispose of approximately 18.2 trillion won worth of Samsung Electronics stocks.
In summary, Samsung Group faces the long-term task of increasing its equity ownership, through the holding company-level Samsung C&T, to compensate for the insufficient stake (5%), while simultaneously reducing the equity stake that Samsung Life Insurance holds in Samsung Electronics (8.6%). Selling Samsung Electronics’ equity held by Samsung Life Insurance to a third party outside the group would weaken Chairman Lee's control, making it a practically unlikely scenario.
◇ Different from the 'pillar' Biologics... A step away from the core governance structure
The market has been discussing several scenarios that Samsung Group could propose as a solution.
First, the possibility of exchanging the equity holdings of Samsung Biologics held by Samsung C&T and the equity of Samsung Electronics held by Samsung Life Insurance and Samsung Fire Insurance was mentioned.
However, there are several blind spots in this. First, Samsung Biologics is the main body of the CDMO business and is also a key future source of revenue within Samsung Group alongside semiconductors. It is an asset that requires the governance of the holding company, Samsung C&T, to be maintained.
An industry official said, 'If Samsung Electronics dominates Biologics, only the link between Samsung C&T and Samsung Electronics will remain, and Samsung C&T will lose its influence over Biologics.' Another official pointed out that 'Samsung C&T transferring the equity of Biologics—which had led to actual imprisonment of the owner due to overvaluation controversies during the merger—to Electronics is a decision made with an awareness of the owner rather than business synergy,' and added, 'It is a method that cannot be pursued in today's circumstances.'
In this situation, how can the partitioning of Samsung Biologics and Samsung Bioepis be interpreted?
First of all, Bioepis Holdings is an asset that is less burdensome to utilize for governance restructuring compared to Biologics. As a listed company, it has objective market value and is also a strategic asset that can be relatively easily used as an 'asset for liquidity' since it is a step away from the core governance of the group.
In the future, Samsung C&T can choose to sell its stake in Bioepis Holdings to Samsung Electronics or Biologics and use those funds to acquire additional equity in Samsung Electronics.
However, the effects of this method are not very significant. The market capitalization of Bioepis Holdings, based on the spin-off, is around 26 trillion won. Even if it is sold at a premium, there is not much in terms of additional Samsung Electronics equity that Samsung C&T can secure.
◇ Possibility of selling shares of Bioepis Holdings or establishing a JV... 'A value of 34 trillion won seems appropriate'
Therefore, the industry views that Samsung C&T can attract funds by selling its stake in Bioepis Holdings to the outside or by creating a joint venture (JV) with a third party. With that money, Samsung C&T could acquire Samsung Electronics stocks from Samsung Life Insurance, which would help accelerate the growth of the bio sector.
Whether Bioepis Holdings can maintain a high corporate value after the spin-off is uncertain. Last year, Celltrion recorded sales of 3.5573 trillion won, and its market capitalization was around 34 trillion won, while Samsung Bioepis had sales of 1.5377 trillion won last year.
However, market outlooks are optimistic. Hana Securities estimated the operational value of Samsung Bioepis at 34.35 trillion won, based on the projected sales of its biosimilar pipeline through 2027.
Choi Gwan-soon, a researcher at SK Securities, noted, 'If Samsung C&T sells its holdings in Samsung Bioepis Holdings, it can secure approximately 29.6 trillion won in cash.'