Poongsan calls off defense biz spinoff plan upon minority shareholder objection

[Photo by Yonhap]

South Korea’s Poongsan Corporation, the maker of fabricated non-ferrous metal and defense products, has decided to scrap its plan to carve out its defense business after facing fierce backlash from its minority shareholders, according to the company’s regulatory filing on Tuesday.

Poongsan earlier last month announced out of the blue that it would separate its lucrative defense business to set up a subsidiary called “Poongsan Defense.” The announcement met strong opposition from minority shareholders who suspected the management hurried with the spinoff ahead of a tougher government regulation.

The announcement was made only three days after the Financial Services Commission revealed a new regulation to restrict a demerger of lucrative business that often causes losses to shareholders of a parent company following an initial public offering of the carved-out subsidiary.

The new regulation allows shareholders of listed companies who oppose spinoffs to request parent companies to buy back their shares. Minority shareholders often suffer losses from a fall in the stock price of a parent company following a separated key business’ IPO.

“We took into account the government’s push to make changes to split-off rules to enhance shareholder protection policies,” said an official from Poongsan.

Another listed company DB HiTek announced last Monday that it was calling off an earlier plan to separate semiconductor fabless business, its most lucrative business.

Shares of Poongsan traded up 3.41 percent at 27,300 won ($19.22) during Wednesday morning trade.

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