DI Corporation, known as a 'textile mogul', has embarked on a significant business restructuring by merging its key subsidiary, Dongil Aluminum. Following the governance issues that emerged last year, the company has introduced shareholder-friendly policies, including the elimination of dual roles of auditors and the burning of treasury shares. This time, it appears to be accelerating its mid- to long-term shareholder returns and improving business efficiency by absorbing a profitable subsidiary.
◇ From 'textile mogul' to secondary battery material company... a medium-sized enterprise with 11 affiliates
DI Corporation traces its roots back to Dongil Spinning, founded by the late Chairman Seo Jeong-ik in September 1955. From 1960 to 1980, it was one of the leading textile companies that drove Korea's growth. In 1964, the company solidified its position as a traditional manufacturing enterprise by becoming the 16th company listed on the Korea Composite Stock Price Index (KOSPI).
Initially focused on the textile business, DI Corporation later diversified its operations. It expanded into the plant sector producing aluminum foil for secondary batteries, gas filters, and pollution control equipment. This marks a shift towards materials and eco-friendly equipment.
DI Corporation also serves as the holding company of the Dongil Group. As of the end of 2024, it holds 11 affiliated companies, with nearly 100% equity in most of them. Notable subsidiaries include Dongil Aluminum, Dongil C&E, DI Biz, and PT Dongil Indonesia.
Among these, Dongil Aluminum, which produces aluminum foil for secondary batteries, is considered a key subsidiary within the group. As of 2023, its revenue was 191 billion won, and its operating profit was 5.2 billion won. Dongil Aluminum has DI System under its wing and jointly controls DIA Aluminum India with DI Corporation.
◇ Although third-generation management has begun, the influence of CEO Seo Tae-won and the founding family is low
Currently, DI Corporation is operated under a third-generation management system led by CEO Seo Tae-won. After the resignation of the second-generation owner, Seo Min-seok, from the CEO position in 2019, Seo Tae-won ascended to CEO after 11 years at the company.
However, the prevailing view is that actual management authority still lies with the father, Chairman Seo. Seo's equity stake is 1.98%, which is only a quarter of Chairman Seo's equity stake of 8.18%. The largest shareholder, Jeongheon Foundation, holds 12.75% and is also chaired by Seo.
The overall equity stake of the founding family also stands at only 24.77%, indicating limitations in securing independent governance. Even when including the stakes of related parties like Jeongheon Foundation (12.75%), Chairman Seo (8.18%), Ms. Yeo Kyung-joo (1.32%), and CEO Seo (1.98%), it is still insufficient for securing voting rights.
In contrast, the share of minority shareholders participating in management decisions is high. The stakes of actively participating minority shareholders are said to be 3.2%, and the minority shareholder platform 'Act' is reported to hold over 15%. Additionally, the National Pension Service, which is favorable to minority shareholders, holds 5.18%.
In practice, major management decisions are difficult to push forward without the consent of minority shareholders and the National Pension Service. Particularly, major agenda items such as changes to the articles of incorporation, mergers, and appointment of auditors require a special resolution at the shareholders' meeting. In such cases, consent from two-thirds (approximately 66.7%) of attending shareholders is needed, which cannot be achieved with only the founding family's equity stake.
◇ Amid governance controversy, DI Corporation rolled out 'shareholder return policies'
In this situation, governance issues arose when DI Corporation lent 9.6 billion won of company funds to Jeongheon Foundation, its largest shareholder. Notably, during the approval process for the loan, it was revealed that DI Corporation's internal auditor concurrently served as the secretary for Jeongheon Foundation, leading to criticism of the inadequacy of internal checks.
In response, eight minority shareholders, including Shin Min-seok, former vice president of Radifangs Partners, demanded a replacement of the audit committee and requested a special shareholders' meeting. They sought the dismissal of the current auditor and the nomination of a new auditor based on their holding of 3.2% equity, but they fell short of the 67% approval requirement for a special resolution at the shareholders' meeting. However, it drew attention that the support rate reached 60% as the National Pension Service and foreign shareholders sided with the minority shareholders.
After the governance controversy, DI Corporation introduced measures to alleviate minority shareholders' dissatisfaction. Initially, DI Corporation promised to eliminate dual roles of auditors and to establish an audit committee consisting solely of outside directors. Additionally, it stated that it would seek advice from external professional organizations to improve its internal accounting management system.
At the same time, DI Corporation also proposed shareholder return measures. It announced a stock dividend of 0.05 shares per share. Furthermore, it decided on the retirement of 6.46 million shares amounting to a total of 272.5 billion won from November last year to last month.
On March 10, the company disclosed its mid- to long-term goal of 'shareholder friendliness and transparent management,’ along with plans for restructuring its business and improving its financial structure by utilizing idle assets.
In this context, DI Corporation decided to merge with Dongil Aluminum at a ratio of 1:1.19. Once the merger is completed on August 1, the number of affiliated companies under DI Corporation is expected to decrease to 10. The company explained, 'This is a measure to eliminate overlapping organizations and enhance management efficiency.'
Minority shareholders are expressing their approval of this merger decision. In the past, DI Corporation has been continuously discussing the possibility of an initial public offering (IPO) due to guaranteed performance. However, the potential for a dual listing of the 'profitable subsidiary' Dongil Aluminum has consistently hindered this process. Shareholders expect that through this merger, corporate value will be fairly recognized in an IPO.
◇ Experts view shareholder return measures positively... 'It should direct the growth of the business'
Experts say that given the high equity stakes of minority shareholders, shareholder return measures are necessary. However, they argue that return measures should focus on enhancing corporate value rather than short-term dividends.
Professor Kim Beom-jun of the Accounting Department at Catholic University stated, 'The equity of DI Corporation's major shareholders is only around 20%, which is relatively low.' He added, 'Since minority shareholders hold about 80% of the total equity, the company should operate transparently and responsibly under the principle of good faith.'
He continued, 'If the company has found highly promising business opportunities for growth, it should invest boldly to increase corporate value. If not, efforts are needed to return revenue to shareholders through dividends or other means.'
He positively assessed the merger of Dongil Aluminum, stating, 'In the case of a 100% subsidiary, uncertainties like the drop in parent company stock prices due to the prospect of a dual listing could arise during future listing attempts. This merger is a measure to eliminate such uncertainties and could work in favor of minority shareholders.' However, he analyzed that 'since aluminum and textiles are not closely related sectors, there may be limitations to synergy effects.'