LG Chem, LG Life Sciences consider merger

LG Group’s chemical arm LG Chem is considering a merger with its pharmaceutical affiliate LG Life Sciences.

Both companies announced through a company filing on Tuesday that they “are considering various measures including a merger but no details have been decided yet.”

However, as the sister companies did not deny to the speculations of the merger “it is highly likely the merger will take place,” said Kim Jang-won, an analyst at IBK Securities. According to an insider at LG Chem, various scenarios are being discussed excluding a merger by share purchases.

The speculation comes as LG strives to find new sources of profit. LG Chem’s finances and LG Life Sciences’ bio technology are expected to create a positive synergy.

If the merger proceeds, LG Chem’s bio business pillar may be strengthened alongside its existing battery and petrochemical business. In the long term, the balance could shield volatile market risks from the company’s petrochemical business and foster a new cash cow for the company.

The chemical company had announced earlier that it has energy, water and bio business as its key focuses for the future and acquired Dongbu Farm Hannong, an agriculture and agri-chemical company in April, for 424.5 billion won ($388.6 million). The agriculture arm is expected to ramp up LG Chem’s business in bio through active investment and M&As.

LG Life Sciences will also benefit from LG Chem’s abundant cash to further beef up its research and development in the bio sector. The company produces Factive, a third-generation quinolone antibiotic approved by the U.S. Food and Drug Administration and Eutropin, a growth hormone for children. It is now working to develop vaccines for pneumonia and polio.

“LG has stable source of profits through diversified business portfolios and bio as an addition would positively impact future share prices of the group,” Kim from IBK Securities added.

However, KTB Investment & Securities Lee Hye-rin said, “If the existing businesses of LG Chem do not improve in profits, a mere addition to the portfolio by merging with LG Life Sciences would negatively influence LG Chem shares in the short term.”

LG Chem and LG Life Sciences shares both fell on Wednesday. LG Chem slipped 0.8 percent from the previous trading day to close at 249,500 won per share while LG Life Sciences closed at 66,200 won, down 5.56 percent. LG rose 0.44 percent to 68,200 won.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]