Intragroup mergers soar upon pressure for better corporate governance

By Shin Ji-hye

Lotte, CJ seek intragroup mergers; Hyundai’s plan on hold upon shareholders’ opposition

  • Published : Aug 22, 2018 - 16:23
  • Updated : Aug 22, 2018 - 16:24

Intragroup mergers of Korean conglomerates saw a big rise in the first half of the year amid a push to improve their corporate governance, according to the nation’s antitrust watchdog Wednesday.

According to the Fair Trade Commission, the volume of mergers and acquisitions by conglomerates with assets of more than 5 trillion won ($4.4 billion) stood at 16.5 trillion won in the January-June period compared to 15.3 trillion won in the same period last year.

Of the volume, 14.6 trillion won was traded for mergers among group affiliates -- a sharp increase from 4.9 trillion won in the same period last year -- either by shifting to a holding company or easing cross-shareholding ties in order to improve corporate governance, according to the government.

The remaining 1.8 trillion won was traded for mergers with other companies, showing no major transaction, such as a deal worth 9.3 trillion won between Samsung and Harman last year.

The sharp rise in intragroup mergers among conglomerates appears to stem from FTC chief Kim Sang-jo’s continued pressure on such companies to improve their governance structure.

An anonymous FTC official said, “Although we can’t comment on it officially, we can’t deny (the FTC’s role in the rise).”

Since Kim took office in June of last year, he has had meetings twice with top management of the nation’s top five conglomerates -- Samsung, Hyundai, SK, LG and Lotte -- urging the family-controlled conglomerates to voluntarily reform. 

Except for Samsung, Hyundai Motor, SK, LG and Lotte have since announced their governance structure plans or are in the process of pushing for reform. Other conglomerates, including Hyundai Heavy Industries, CJ, Daelim and Hyosung, also announced their corporate governance plans.

During the first half of the year, Lotte Holdings and CJ CheilJedang merged with some of their affiliates. Hyundai group pushed to streamline its ownership structure but the plan was withdrawn due to a conflict with US activist hedge fund Elliott.

“The latest push to reform by conglomerates is a good sign to shareholders and markets, although it may not be for owner families whose power could be reduced,” said Park Ju-gun, head of corporate analysis firm CEO Score.

During the first half of the year, Korean companies were comparatively less interested in buying foreign firms. 

The total volume of acquisitions of foreign companies by Korean companies stood at 3.3 trillion won, a drop from 4.5 trillion won in the first half of last year.

The FTC attributed the drop to growing uncertainties in the global economy stemming from trade disputes and protectionism.

By Shin Ji-hye(