Celltrion plans merger, holding company transition

Celltrion Pharm’s stock price rose Monday following the company's announcement that it would merge three affiliates and adopt a holding company structure by 2021.

Based on the affiliates' current values, the merged entity would have a market capitalization of 52 trillion won ($44 billion), making it the third-largest company on the Kospi after Samsung Electronics and SK hynix.

As a first step, Celltrion announced in a public filing late Friday afternoon that founder and Group Chairman Seo Jung-jin would cash out 24.33 percent of Celltrion Healthcare and use the proceeds to establish a parent company, Celltrion Healthcare Holdings. Seo owns 35.54 percent of Celltrion Healthcare.

If all goes as planned, Celltrion Healthcare Holdings will be merged with Celltrion Holdings by late 2021. Celltrion Holdings holds the other two affiliates, Celltrion and Celltrion Pharm. That would put all three companies under a single holding company.

On Monday, Celltrion Pharm’s stock closed 6.68 percent higher than the previous trading day to reach 110,200 won. This was the first trading session since the announcement was made. During the session, the price rose to as high as 19 percent over Friday’s close.

Among the three companies, Kosdaq-listed Celltrion Pharm has the smallest market cap. Celltrion Healthcare’s stock closed the same as Friday while Celltrion’s slightly fell 1.35 percent on Monday.

“We believe establishing a holding company structure will strictly separate ownership and management, solidifying the grip of professional managers [over each affiliate]. Merging the three companies will also put development, distribution and sales under a single company — hence increasing cost efficiency and business transparency,” the bio pharmaceutical company said in a Friday statement.

Celltrion develops and produces biosimilars, the business the company is best known for. Celltrion Healthcare is the exclusive exporter of the main affiliate’s three biosimilars, now approved and sold in more than 100 countries. Celltrion Pharm is in charge of domestic sales and the group’s lower profile business of over-the-counter drugs.

The current corporate structure, in which production and sales are controlled by different entities, has raised issues. In a 2019 report from the Fair Trade Commission, Celltrion Group was showed to have raised 41.4 percent of its revenue by internal group transactions. This was the highest ratio among 59 conglomerates.

In Korea, a high ratio of internal group transactions attracts the attentions of the Fair Trade Commission and can make the company a target of investigation for depriving external suppliers business opportunities.

Local analysts generally agree that the merger would eliminate risks related to inter-group transactions and cut some costs. If the three companies combine their cash reserves it could also help fund research and development, mergers or acquisitions.

But analysts are mixed on how big the merger’s effect will be.

“As the planned merger will simply bring together development/production and distribution operations, we do not expect any strong cost reduction effects via an improved transaction structure,” Mirae Asset Daewoo analyst Kim Tae-hee wrote in a Monday report, adding that Celltrion Healthcare already has a “low back-office headcount.”

Some pointed out that the roadmap lacks relevant details to assess its future impact, like the value of the shares of each company in the merger. The plan also awaits a major obstacle: shareholder approval.

“Individual shareholders make up a large group at both Celltrion and Celltrion Healthcare, holding 62.97 percent and 52.39 percent shares,” noted Hana Financial Investment analyst Sun Min-jeong. “Their interests may greatly differ over the valuation of the merged entity. Therefore, we expect the merger of the three [Celltrion] affiliates to have many obstacles.”

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]