[비즈한국] Attention is focused on whether former Chairman Lee Yang-gu will return to the board of directors through the extraordinary shareholders' meeting on the 12th. The extraordinary meeting is set to deliberate on agenda items that would result in a significant shake-up of the management, including the appointment of former Chairman Lee as an outside director. The management dispute between former Chairman Lee and his nephew, current CEO Na Yoon-kwon, ignited last April when the former chairman sold his 14.12% stake to Brand Refactoring.
With one day left until the extraordinary meeting, both sides are claiming that the other has caused harm to the company and its shareholders. Brand Refactoring's position is, “The current management is abusing corporate rehabilitation procedures as a means to defend their management rights. We will replace the current management to lead the company's normalization.” On the other hand, Dongsung Pharmaceutical argues, “Corporate rehabilitation is an inevitable choice to correct the failures of previous management that have accumulated over the past 20 years. The rehabilitation plan must be maintained by voting down all opposing agenda items.”
The management dispute between former Chairman Lee and CEO Na dates back to last April. At the end of last year, Dongsung Pharmaceutical faced a severe financial crisis, including delayed employee salary payments and a downgrade in corporate credit rating; former Chairman Lee stepped down from his CEO position to take responsibility for this. However, in April, former Chairman Lee sold his 14.12% stake to Brand Refactoring. Controversy arose as the transaction price was 14.8% lower than the stock price at the time, and contract terms hinting at a return to management were revealed. Since then, both sides have engaged in legal battles and filed reciprocal complaints against each other for professional malfeasance.
In this process, Dongsung Pharmaceutical began the steps to initiate corporate rehabilitation procedures. When trading resumed immediately after the initiation of the rehabilitation process, the stock price plummeted due to a flood of forced liquidations, increasing losses for minority shareholders. The risk of delisting also became tangible. On August 13, the Korea Exchange granted Dongsung Pharmaceutical an improvement period. The final decision on whether to maintain the listing will be made in the first half of next year, based on a comprehensive evaluation of the execution of the improvement plan submitted by the company, its viability as a going concern, management transparency, and shareholder protection.
Dongsung Pharmaceutical’s stance is to pursue M&A before the rehabilitation plan is approved. However, this would inevitably lead to losses for the largest shareholder, Brand Refactoring. If new capital is injected, it is highly likely that the stake held by Brand Refactoring will be subject to cancellation or capital reduction without compensation. Brand Refactoring claims that this plan forces a sacrifice of shareholder value. In a letter to shareholders, Brand Refactoring stated, “The improvement plan for maintaining the listing submitted by the current management centers on pursuing rehabilitation through M&A before approval, which fundamentally infringes on shareholder rights as a capital reduction without compensation is structurally inevitable. It is merely shifting the responsibility for illegal acts already exposed several times onto the shareholders.” They also announced that they have already secured 15 billion won in reserve funds and commitments from friendly investors.
The outcome of this extraordinary meeting depends on other shareholders. As of June 30, Brand Refactoring remains the largest shareholder with an 11.16% stake. CEO Na holds 2.88%, treasury shares account for 7.33%, and other shareholders hold 77.65%. A representative for minority shareholders, gathered through the online platform 'ACT,' stated, “We cannot represent all shareholders, but in the end, who cares more about the shareholders is what matters most.” Currently, 4.46% of general shareholders are gathered on ACT.
Shin Sung-hwan, a representative for Dongsung Pharmaceutical’s minority shareholders, stated, “My heart is leaning toward Brand Refactoring, which informed us of shareholder protection measures.” According to Representative Shin, although the company was required to report bonds, stocks, etc., between July 8 and August 4 after the decision to initiate rehabilitation procedures was made in June, the company did not issue a public notice. He claims that although some shareholders requested a notice on the homepage and the company promised to do so, no action was taken. Shin said, “At first, I intended to support the current management. I even contacted the company and told them, ‘The shareholders want to support the current management.’ But as the company kept changing its story, I turned away completely.”
Regarding the pursuit of M&A before approval, Shin said, “Isn't it saying they will cancel existing shareholders' stocks and invest new capital? I kept telling the current management to meet with Brand Refactoring and find a way. But the company just kept saying ‘They are corporate raiders’ and that there was no need to meet them. You can't expect me to agree to rehabilitating the company at the expense of shareholder losses, right?”
On the 9th, Lee Kyung-hee, the eldest daughter of the late founder Lee Sun-kyu, appeared on the YouTube channel Loco TV and released transcripts containing evidence of former Chairman Lee’s illegal management activities and embezzlement. Regarding this, Representative Shin said, “I don’t think there is a need to equate former Chairman Lee with Brand Refactoring. Even if they made a contract, they are separate entities, and for us, it is important who cares more about the shareholders. The problems between the former chairman, Ms. Lee Kyung-hee, and CEO Na are family matters. Most shareholders seem to think that family problems should be considered separate from the issue of whether to save or kill Dongsung Pharmaceutical. The essential part is that things should proceed in a direction where existing shareholders do not suffer losses.”