FCP Sends Open Letter to Orion: "Controlling Family Must Return as Registered Directors or Work Without Pay"

"Chairman and Vice Chairwoman Receive Hefty Pay Without Accountability"
"Halt JoongAng Ilbo Bid and Enter the Pet Food Industry"

Activist private equity fund Flashlight Capital Partners (FCP) sent an open letter to Orion's board, outlining five demands, including appointing members of the controlling family as registered directors or having them manage the company without compensation. The letter criticized the family members for receiving substantial compensation without being registered directors.

An FCP representative said on October 19, "We delivered an open letter to Orion's board calling for governance reform and enhanced shareholder value, and requested an official response by November 13."

FCP's five demands are: choosing between appointing members of the controlling family as registered directors and having them manage the company without compensation; introducing stock-linked compensation for executives; increasing shareholder returns; halting the acquisition of JoongAng Ilbo; and entering the pet food business.

Call for Responsible Management by Controlling Family and Governance Reform

According to FCP, Orion holds the No. 1 share of South Korea's confectionery market, at 22%, and generates two-thirds of its total revenue overseas. However, its enterprise value-to-EBITDA (EV/EBITDA) ratio is around 3 times, far below the global industry median of 11.5 times, and FCP says the company is undervalued by about 60% relative to its intrinsic value. FCP also noted that Orion has KRW 2.1 trillion in net cash and financial assets, nearly half its market capitalization, while its dividend yield is only 2.8%.

FCP identified the controlling family as the main reason for Orion's undervaluation. It criticized Chairman Dam Cheol-gon and Vice Chairwoman Lee Hwa-kyung, who have faced legal risks since 2011, for stepping down as registered directors of Orion and Orion Holdings in 2013 while continuing to receive substantial compensation from both companies, outside the scope of the director compensation limits reviewed at shareholder meetings.

National Pension Service, which holds a 9.1% stake, has voted against the compensation limit proposals four times, but they have repeatedly failed to pass due to the controlling family's shareholding. FCP said the couple's effective dividend yield is 4.9%, allowing them to reap disproportionately high returns compared with ordinary shareholders, whose yield is 2.8%.

Calls to Halt JoongAng Ilbo Acquisition and Enter Pet Food Business

FCP also expressed concern about Orion's pursuit of an excessive merger and acquisition (M&A) deal. Orion's share price plunged 18% shortly after it announced an investment of KRW 550 billion in LIGACHEM BIOSCIENCES in January 2024. More recently, reports said Orion was participating in a bid to acquire JoongAng Ilbo, which recorded a net loss of KRW 92 billion in the first half alone. Citing Orion's past successive sell-offs of On Media and Bennigan's in the 2000s, FCP CEO Lee Sang-hyun asked, "Have they failed to learn from those past failures?"

FCP proposed that Orion enter the pet food business as a new growth driver. It pointed out that the sector has strong growth potential as the number of pets has reached six times the number of children aged zero to four amid a deepening low birth rate. It also noted that Mars and Nestle, the world's No. 1 and No. 2 pet food companies, both originated as confectionery companies.

Lee said, "On September 15, we asked the company for a meeting with the board and access to the shareholder register, but received no response. This is the first time I've encountered such a situation." He added, "Simply correcting its governance could make it the next Samyang."

This content was produced with the assistance of AI translation services.