Why Celltrion’s Retail Investors Oppose the Merger with Celltrion Pharm
"Concerns Over Damage to Shareholder Value" Urging the Company to Announce Its Position... "Seo Jeong-jin's Promise Might Turn Out to Be Unfulfilled"
The Celltrion Minority Shareholders Association recently placed an advertisement in an economic newspaper expressing their opposition to the merger. These are the same shareholders who welcomed last year’s merger between Celltrion and Celltrion Healthcare, even going as far as running billboard ads and promoting a "buy one share a day until the merger" campaign.
The association listed four main reasons for their opposition to the merger with Celltrion Pharm, primarily arguing that it lacks justification. They stated, “The previous merger with Celltrion Healthcare had justification, such as resolving accounting fraud issues and securing cost competitiveness through the unification of manufacturing and sales. However, there is no practical benefit in merging with Celltrion Pharm.”
They also claimed, “If the merger proceeds, Celltrion’s shareholder value will be significantly damaged.” As of July 16, Celltrion’s Price-to-Earnings Ratio (PER) was 51.8, whereas Celltrion Pharm’s was 188.5, approximately 3.6 times higher, indicating that Celltrion’s shareholders’ interests would be compromised. PER is a profitability indicator calculated by dividing the stock price by earnings per share. A high PER implies that the stock is overvalued relative to its earnings.
During the merger with Celltrion Healthcare, the PER of Celltrion and Healthcare also had a significant difference, but it was necessary to resolve issues like internal transactions and accounting fraud. However, the association argues that no such justification exists for the merger with Celltrion Pharm.
They also expressed concerns about a potential decline in stock prices. The association argues that if Celltrion merges with the highly valued Celltrion Pharm, Celltrion’s value will decrease, leading to an inevitable drop in stock prices due to an approximately 10% increase in the number of shares by market capitalization. They suggested that the merger should occur when Celltrion’s shareholder losses are recovered, and the values of both companies are equally assessed.
Last year, Celltrion recorded separate sales of 1.8734 trillion KRW (approx. $1.44 billion) and an operating profit of 638.5 billion KRW (approx. $490 million). In contrast, Celltrion Pharm had sales of 388.8 billion KRW (approx. $300 million) and an operating profit of 36 billion KRW (approx. $28 million). As of the closing price on the 26th, the stock prices were 199,200 KRW (approx. $153) for Celltrion and 95,300 KRW (approx. $73) for Celltrion Pharm. Despite Celltrion’s operating profit being about 17 times greater, the stock price difference is only twofold. Celltrion and Pharm have 216,993,223 and 41,596,653 listed shares, respectively.
Six Months Have Passed Since the Promise
“After completing the merger between Celltrion and Celltrion Healthcare, we will proceed with the second-stage merger with Celltrion Pharm within six months.”
In August and October of last year, Chairman Seo Jeong-jin made the same statement twice when announcing the merger with Celltrion Healthcare. The key point was that the merger with Celltrion Pharm would be pursued within six months after the merger with Healthcare was completed. He stated that all integration procedures, including the merger with Celltrion Pharm, would be completed by 2024.
However, more than six months have passed since the new shares from the Celltrion-Celltrion Healthcare merger were listed on January 12th, and no specific plans have been announced yet. This has led to concerns that Chairman Seo’s promise might turn out to be an empty pledge.
In the meantime, Celltrion shareholders attribute the stagnant stock price to the uncertainty surrounding the merger and are urging for measures to be taken.
Oh Yoon-seok, the head of the Celltrion Minority Shareholders Association, stated, “The stock price has been sluggish for more than six months since the merger with Healthcare. In this situation, foreigners or institutions may think that the merger with Pharm would not benefit the performance and would only increase market capitalization, making it difficult for the stock price to rise.”
He added, “If the perception that a merger with Pharm is imminent remains in the market, only the relatively lighter Pharm stock price will rise, while Celltrion’s stock price will fall, leading to shareholder losses. The company should announce that it will not pursue the merger with Celltrion Pharm for the time being to eliminate market uncertainty and ensure that Celltrion’s stock price is properly evaluated in the market.”
It is expected that Celltrion’s concerns will deepen. If the merger ratio is determined based on stock prices as it was during the integration with Healthcare, it is evident that Celltrion’s shareholders will oppose it. Therefore, there are suggestions in the market that the merger may be postponed until Celltrion Pharm’s performance and corporate value are sufficiently improved or that a small-scale merger may be conducted.
A small-scale merger is a merger method that can be attempted when the ratio of the new shares to be issued does not exceed 10% of the total issued shares of the merging company. It does not require a resolution of the general meeting of shareholders or a stock purchase request procedure for dissenting shareholders, so no merger costs are incurred. However, if more than 20% of the total issued shares of the merging company express opposition, a small-scale merger is not recognized.
A Celltrion representative stated, “We are reviewing the merger with Celltrion Pharm from various angles,” and “we will provide guidance through disclosures if there is any news.”