Sampyo Group, which operates in the construction materials (cement, ready-mixed concrete, aggregates, concrete, etc.) business, faced obstacles in the process of management succession.
Prosecutors have launched an investigation into allegations that Jeong Do-won (78), chairman of Sampyo Group, unfairly supported the private company of his eldest son, Jeong Dae-hyun (48), by purchasing raw materials for ready-mixed concrete at prices higher than the market rate. On the 26th, authorities also executed a search warrant at the Sampyo Industrial headquarters.
Minor shareholders of SAMPYO Cement, the only listed company under the control of Sampyo Industrial, noted, "Since it can no longer purchase raw materials at inflated prices, the company's profits may increase," adding, "It is not unreasonable to view this as using company funds for personal gain."
An investor mentioned, "Sampyo Industrial and former CEO Hong Sung-won have already been referred to trial on charges of violating the Fair Trade Act," adding, "Punishing embezzlement and misappropriation is necessary to prevent recurrence of such issues."
◇Fair Trade Commission: 'Sampyo Industrial unfairly supported the chairman's son's company'
The Fair Trade Commission imposed a penalty surcharge of 11.62 billion won on Sampyo Industrial for unfair support allegations last August and referred the company to prosecutors.
It was found that between January 2016 and December 2019, Jeong Dae-hyun, vice chairman, who held 71.95% equity in the private company "SP Nature," purchased all the powder used for producing ready-mixed concrete at a higher price than when dealing with non-affiliated companies.
The Fair Trade Commission concluded that through this transaction, SP Nature gained approximately 7.5 billion won in unfair profits, equivalent to 5 to 9% of its annual operating profit. Moreover, it is believed that Jeong Dae-hyun used these unfair profits to participate in capital increases of Sampyo and Sampyo Industrial, thus increasing his equity stake and strengthening his influence over major affiliates.
◇In 2023, Sampyo Industrial, previously an 'affiliated company,' became a 'holding company'... Jeong Dae-hyun's influence expands
Chairman Jeong Do-won, approaching an advanced age, has chosen his only son involved in the group management, Jeong Dae-hyun, as his successor.
In July 2023, a restructuring was also carried out to enhance Jeong Dae-hyun's control over the group. At that time, the holding company, Sampyo Co., Ltd., was merged into Sampyo Industrial. Following the merger ratio (1.8742887 shares of Sampyo for 1 share of Sampyo Industrial), a total of 10,533,338 new shares were issued. The governance structure was changed from 'family head-Sampyo-Sampyo Industrial' to 'family head-Sampyo Industrial-affiliates.'
In the former holding company, Sampyo Co., Ltd., Jeong Dae-hyun's equity stake remained at 30.77%, even including SP Nature. The gap with Chairman Jeong Do-won's equity (65.99%) reached 35.22%.
However, in the merged Sampyo Industrial, Jeong Dae-hyun's side's equity was 16.82%, while Chairman Jeong Do-won held 33.15%, reducing the gap to 16.33%. This resulted in a strengthening of Jeong Dae-hyun's control over Sampyo Group.
Sampyo Group stated, "This is to secure new growth opportunities," emphasizing that it is unrelated to the management succession. However, the market analyzed this as a 'succession effort.'
◇Sampyo performs well, but legal risks are the biggest obstacle
After completing its restructuring, Sampyo Group promoted Jeong Dae-hyun from president to vice chairman. He received a Master of Business Administration degree from the University of Southern California and joined Sampyo in 2005. He gained experience in group operations by serving in various roles, including marketing support for basic materials, Chief Marketing Officer (CMO) at SAMPYO Cement, and representative of Sampyo Railway and SAMPYO Cement.
Vice Chairman Jeong Dae-hyun controls Sampyo Industrial by combining his 5.22% equity with 18.23% of SP Nature, placing him as the second-largest shareholder. Currently, his father and largest shareholder, Chairman Jeong Do-won, holds 30.3% of the equity, controlling major affiliates including SAMPYO Cement, Sampyo, Sampyo P&C, and NLC. Sampyo Industrial has reached 44.7% in treasury shares without voting rights, meaning only the chairman and his second generation hold control.
The company's performance is relatively strong. Sampyo Industrial recorded sales of approximately 1.596 trillion won last year, which is less than the expected 1.662 trillion won in 2023, but its operating profit rose by about 190 million won to approximately 117 billion won. In contrast, competitor EUGENE Corporation maintained its performance while seeing a 5.4% decline in consolidated sales, from 1.3933 trillion won last year to 1.4734 trillion won in 2023.
As of last year, Sampyo Industrial's sales were significantly affected by SAMPYO Cement and its subsidiaries, with SAMPYO Cement accounting for 75% (about 790.7 billion won), Sampyo P&C 13% (about 137 billion won), and Sampyo Railway 9.57% (1.008 billion won).
The stumbling block is legal risk. Given the penalty surcharge imposed by the Fair Trade Commission and the start of the prosecutor's investigation, the likelihood of administrative and criminal lawsuits in the future has increased. If legal disputes occur, they could disrupt the ongoing succession efforts.
A Fair Trade law specialist stated, "The sanctions from the Fair Trade Commission could transcend simple administrative penalties and expand into legal responsibilities due to the prosecutor's investigation and potential punishment."
They added, "It will take at least more than two years for the case to conclude; thus, it will be difficult to focus on succession efforts until the trial is finished," stating, "If the allegations of unfair support are recognized in court, it may create pressure for future succession efforts."