Governance Forum: "Solidigm Listing Must Be Halted... Only SK hynix Shareholders Lose Out"

"Solidigm's Dual-Listing Controversy Centers on a Conflict of Interest"
"Measures Needed to Address Undervaluation at a P/E of 3"

The Korea Corporate Governance Forum has again moved to block SK hynix's efforts to list its subsidiary Solidigm. It argues that because the core issue surrounding Solidigm's planned U.S. listing is a conflict of interest between SK Group Chairman Chey Tae-won and ordinary shareholders, the board should step in and resolve to halt the listing. It also called for measures to address the company's undervalued share price.

The forum made the comments in a statement on October 20, saying, "Koh Seung-beom, chairman of the SK hynix board, should immediately convene the board and resolve to halt the listing."

While SK hynix has repeatedly dismissed speculation about Solidigm's initial public offering (IPO), saying no decisions have been made, the market is treating a Nasdaq listing next year as a foregone conclusion. Solidigm is reportedly already selected Goldman Sachs and Morgan Stanley as lead underwriters for its IPO. In response, opposition has grown among SK hynix shareholders, who fear that recognizing the value of Solidigm's core NAND flash and solid-state drive (SSD) businesses as a separate entity would erode the value of existing shares.

Yonhap News Agency

The forum said the essence of the dual-listing controversy was a "conflict of interest," arguing that "Chey Tae-won, the controlling shareholder and unregistered chairman of SK hynix, would maintain control over the U.S.-based fourth-tier AI Company and fifth-tier Solidigm while shifting the cost of dilution solely onto SK hynix's ordinary shareholders." The forum was referring to the complex ownership structure running from SK Inc. through SK Square, SK hynix, AI Company (a U.S. corporation), and Solidigm.

Chey has long exerted influence over the semiconductor business through this ownership structure while holding a 17.9% stake in SK Inc. Before he purchased his first SK hynix shares in his own name in late July, his indirect ownership stake in SK hynix was just 1.2%.

By contrast, the National Pension Service directly holds a 7.3% stake. The forum argued that ordinary shareholders would bear the full dilution losses resulting from the sale of Solidigm shares to outside investors, while Chey would retain control over Solidigm with little exposure to those losses.

Source: Korea Governance Forum

The forum said, "Because controlling shareholders of top-tier holding companies receive only a small fraction of cash flows, they have an incentive to expand their businesses and build an empire or create structures for private-benefit extraction and tunneling, rather than reasonably weighing economic risks when making decisions about shareholder returns or investments. The SK Group, which has maximized leverage through a five-tier dual-listing structure, is a prime example."

The forum also raised the possibility of wealth being transferred among shareholders. SK Telecom, SK Innovation, and SK Inc. have already committed to investing $1.11 billion in AI Company, which sits between SK hynix and Solidigm, by 2030. The forum said, "If other affiliates bought stakes in AI Company at a low price before expectations of a listing were reflected in its valuation, they could not avoid questions of unfairness." It added, "This scenario would shift some of the increase in AI Company's value resulting from Solidigm's listing away from SK hynix and toward companies in which Chey has a larger stake."

The forum also said there was insufficient justification for Solidigm's listing given this conflict of interest. "From the perspective of SK hynix shareholders, retaining 100% ownership of Solidigm is preferable to selling a stake," the forum said. "The only argument is that 'funding is needed,' but that premise does not hold because SK hynix is expected to generate 167 trillion won in free cash flow this year and 326 trillion won next year." It added, "Even if Solidigm, SK hynix's subsidiary, needs tens of trillions of won for capital expenditures, SK hynix, which has ample cash, could invest in Solidigm through AI Company."

The forum also rebutted arguments that Solidigm's listing should be viewed as a way to recoup acquisition costs and reinvest the proceeds. Citing Google's acquisition of YouTube and Meta's acquisition of Instagram, the forum asked, "Have you ever heard that Alphabet, Google's parent company, or Meta plans to sell part of its stake in YouTube or Instagram to cash out?"

The forum also urged Koh Seung-beom to "immediately convene a board meeting and review the Solidigm listing, which could seriously undermine SK hynix's valuation, from various perspectives, and communicate the findings to shareholders through disclosures." On June 24, the SK hynix board received a report on the establishment of AI Company, which holds 100% of Solidigm, and on the progress made. The forum emphasized, "Now that directors have a legal duty to protect the interests of all shareholders and treat them fairly, the board must consider the interests of existing SK hynix shareholders."

The dual-listing controversy was also raised the previous day at a parliamentary audit by the National Assembly's Political Affairs Committee. Kim Hyun-jung, a lawmaker from the Democratic Party of Korea, said, "SK Inc., the company in which Chairman Chey Tae-won holds his largest stake, directly invested in AI Company, the U.S. corporation that is Solidigm's parent. This creates a structure in which value belonging to ordinary shareholders could be transferred to the controlling shareholder's side." She added, "Even so, an overseas listing does not require an exchange review or approval from shareholders of the parent company, and even if the obligations are breached, the penalty is capped at 2 billion won for SK hynix and SK Square combined."

Financial Supervisory Service Governor Lee Chan-jin also confirmed that Solidigm was subject to regulation. Responding that same day to a question from Democratic Party lawmaker Park Sang-hyuk about whether Solidigm's listing qualified as a dual listing, Lee said, "Both the Financial Services Commission and the Financial Supervisory Service consider it to fall under the dual-listing regulations." He added, "We will convey our concerns to SK hynix in an appropriate manner." Financial authorities are currently considering measures including requiring Solidigm to file a securities registration statement in South Korea.

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