Global investment bank (IB) Macquarie described PharmaResearch's announced spin-off plan as "an unfair measure that only benefits controlling shareholders," and based on this, it revised its investment opinion and target stock price downward.
Previously, PharmaResearch announced that it would partition the company into a surviving corporation called 'PharmaResearch Holdings (provisional name)' for managing investments and a newly established corporation called 'PharmaResearch (provisional name)' to continue its existing aesthetic business, with the partitioning ratio set at 74.28% for PharmaResearch Holdings and 25.72% for PharmaResearch based on retained assets.
Choi Jun, a researcher at Macquarie Securities, strongly criticized the report titled 'Governance issues overshadow growth' on the 17th, stating, "The unfair partitioning ratio leaves shareholders with worthless 'shell' stocks." The investment opinion for PharmaResearch was downgraded from outperform to underperform, with the target stock price lowered from 530,000 won to 360,000 won. PharmaResearch's stock price dropped from 523,000 won before the spin-off announcement to 429,000 won by 2:00 p.m., with the target stock price set even lower than this.
Researcher Choi saw problems with the partitioning ratio. Considering the current market capitalization of 4.5 trillion won, the company estimated the value of PharmaResearch Holdings at about 3.3 trillion won and the value of the newly established PharmaResearch at about 1.2 trillion won. However, he argued that because the newly established PharmaResearch would inherit the core business with high growth potential, 'Rejuran,' its corporate value should have been rated higher than PharmaResearch Holdings.
He noted, "By the time of the share allocation base date in October, the corporate value of PharmaResearch Holdings will be 2.31 trillion won, but the corporate value of the newly established PharmaResearch will reach 5 trillion won when considering the expansion of Rejuran into overseas markets."
Researcher Choi also suggested that there is a possibility of dilution of the corporate value for PharmaResearch Holdings. Under the Fair Trade Act, holding companies must hold more than 30% equity in listed subsidiaries. Since it is a spin-off, PharmaResearch Holdings has no equity in the newly established PharmaResearch. Therefore, shareholders are expected to transfer their equity in the newly established PharmaResearch to PharmaResearch Holdings and proceed with a paid-in capital increase through an asset contribution method.
Researcher Choi pointed out that as the corporate value of the newly established PharmaResearch increases, the scale of dilution experienced by PharmaResearch Holdings during the equity exchange also grows. This is fundamentally because as domestic demand for medical tourism and the overseas market entry boosts the Rejuran business, PharmaResearch Holdings must print more stocks while the corporate value of the newly established PharmaResearch maintains a high level.
The sharp decline in stock prices following the company's announcement of the spin-off is interpreted as the result of investors being disappointed with the partitioning ratio announced by the company.
So, what is the reason behind the company's decision to prepare such a partitioning plan? Researcher Choi indicated that the plan was designed to strengthen the control of the largest shareholder, Chairman Jeong Sang-soo (holding 30.48% equity). He stated, "The hidden intention is clear," adding that "the chairman can secure a majority stake in PharmaResearch Holdings through stock exchange and reduce inheritance tax burdens with a lower standard price after the partitioning."
Must Asset Management, which holds 1% of PharmaResearch's equity, also commented the day before, stating, "If a holding company was necessary, it could simply partition into a 100% subsidiary, ensuring that subsidiary is not relisted with relevant regulations," adding, "I question whether this spin-off decision is for the benefit of all shareholders or just for the major shareholder."
Additionally, Researcher Choi evaluated that restructuring governance based on the sacrifice of shareholders other than the controlling shareholder clashes with the new government's policy direction. President Lee Jae-myung stated he would address the unfairness and opacity of the domestic stock market to eliminate the "Korea discount" (undervaluation of Korean stocks).
Researcher Choi said, "This spin-off weakens the equity of minority shareholders while creating a contentious duplicate listing, solidifying the governance premium for the founding family," and added, "This could raise issues during the regulatory authorities' review process and could become a long-term governance problem."