Eight out of 10 spin-offs see stock value fall after re-listing: data

OCI Co.’s headquarters [Courtesy of OCI]

Eight out of 10 companies that spun off their business units saw their stock prices fall after the separation, data showed Sunday.

According to an analysis by the Korea Exchange on 45 spin-off cases since 2016 and their re-listings, only 24 percent, or 11 cases, saw their stock value go up from before the spin-off. The stock value of the remaining cases fell.

The data showed that companies saw their stock value decline if they used spin-offs to strengthen their control over shareholders instead of enhancing business efficiency.

A company can exert more controlling power following a spin-off where it is allowed to allocate new shares issued by a newly split company to treasure shares of a parent company.

The spin-off brings to the company new voting rights, which is vital to control over the company structure.

Market experts draw a comparison between OCI Holdings Co. and Isu Chemical Co. in terms of the purpose and impacts of spin-offs.

Both employed spin-offs this year but faced different ramifications. After the spin-off and the subsequent re-listing, the combined share value of OCI Holdings and one of its separated units OCI Co. fell 10.02 percent before the spin-off.

OCI Holdings is considered to have spun off OCI to gain more control over the majority shareholder, as it had earlier announced to incorporate the unit into its subsidiaries.

However, the stock value of Isu Chemical and a split unit ISU Specialty Chemical Co. climbed 106.23 percent from the pre spin-off levels. Market insiders said that the rise came from the company’s well-structured governance framework amid growing value for the new business of fine chemicals.

Market experts have called for broader protections for minority shareholders.

“Companies continue to implement spin-offs to ensure more control over governance but ordinary shareholders will lose ground with shrinking voting rights,” said Kim Jun-seok, a researcher at the Korea Capital Market Institute (KCMI). “The current regulatory system needs to be improved to prohibit the allotment of new company shares to treasury shares.”

The Korea Exchange has implemented stricter screening rules for companies that relist after a spin-off. Under the rules, companies are required to hold meetings with minority shareholders to determine their support for a spin-off and listen to their opinions.