[Click e-Industry] If Share Prices Are Left to Languish, Do Major Shareholders Lose Too? ... Food and Beverage Holding Companies' New Calculus

Sempio Merger and Treasury Share Cancellation to Raise Major Shareholder's Stake
Maeil Holdings Also Has an Incentive to Merge... Nongshim Expected to Increase Dividends
"Food and Beverage Sector Rating: 'Positive'"

Securities analysts say food and beverage holding companies that have long been undervalued are likely to take steps to boost their share prices. Since low share prices can also burden major shareholders, analysts expect changes such as mergers with subsidiaries and increased dividends.

According to Hanwha Investment & Securities on November 4, analyst Han Yujeong said the previous day, November 3, "More companies with low price-to-book (PBR) ratios will seek to enhance corporate value rather than leave their share prices unattended, as they have in the past." She gave the food and beverage sector a "positive" investment rating.

While the deadline for the mandatory cancellation of existing treasury shares is set for September 2027, a government-proposed tax law revision is also under review by the National Assembly. It would apply a surcharge of at least 30% to the valuation of companies that have maintained low PBRs for an extended period when calculating inheritance and gift taxes. This means low share prices could become a burden for major shareholders preparing to transfer control.

Sempio: easing the burden of staying listed and increasing the major shareholder's stake

Sempio has moved first. On October 30, Sempio Foods Company decided to absorb and merge with its holding company, Sempio. Sempio had already canceled all of its 29.9% treasury shares in September. Sempio Foods Company also plans to cancel the 2,255,842 treasury shares it will take over through the merger within one year of the merger date.

The move is driven by the burden of maintaining its listing. Sempio's separate-entity assets total KRW 225.6 billion, below the KRW 500 billion required for a holding company. The grace period for existing holding companies ends at the end of June 2027. If Sempio loses its holding company status, its sales for meeting listing requirements will be assessed on a separate-entity basis rather than a consolidated basis.

In addition, when new accounting standards take effect next year, equity-method gains and losses will be reclassified from operating activities to investment activities. Of Sempio's separate-entity revenue of KRW 11.5 billion last year, 82% came from equity-method gains. Excluding those gains, revenue would have been only about KRW 2 billion. The minimum revenue required to maintain a listing will rise to KRW 20 billion starting with 2027 results. Companies with an average annual market capitalization of at least KRW 100 billion are exempt, but Sempio's market capitalization was KRW 87.4 billion just before the merger announcement.

The merger also benefits the major shareholder. Sempio's market capitalization is 1.81 times the value of its stake in Sempio Foods Company, so analysts say a merger based on market prices would increase the major shareholder's effective stake. CEO Park Jinseon's stake will be 23.41% after the merger, rising to 31.51% after the cancellation of the treasury shares transferred as part of the succession process.

Merger is also an option for Maeil... dividends for Nongshim and share cancellations for HiteJinro

Maeil Holdings also falls short of the holding company asset requirement, with separate-entity assets of KRW 378.6 billion. Its situation differs from Sempio's, however, as its earnings consist of management advisory and brand revenues, as well as dividends. Since it is listed on KOSDAQ, it can meet the listing requirements based on separate-entity revenue alone and could also choose to relinquish its holding company status.

There is also an incentive to merge. According to analyst Han, Maeil Holdings' market capitalization is 1.50 times the value of its stake in Maeil Dairies. Analysts say that, assuming a merger based on market prices, the major shareholder's effective stake in the combined company could increase. The actual stake, however, may vary depending on the merger terms and the method of issuing new shares.

Nongshim Holdings and HiteJinro Holdings have little incentive to merge. Both meet the asset requirement, and their share prices are discounted by 55% and 72%, respectively, compared with the value of their stakes in their subsidiaries. A merger based on market prices would therefore reduce the major shareholders' effective stakes.

As a result, Nongshim Holdings is seen as more likely to increase dividends, while HiteJinro Holdings may cancel treasury shares. Nongshim Holdings' dividend payout ratio is only 12.1%. By contrast, analysts say HiteJinro Holdings has limited capacity to return cash to shareholders because its separate-entity borrowings total KRW 637.7 billion.

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