Hyundai Department Store Group transforms into holding company structure

Hyundai Department Store Group headquarters [Courtesy of Hyundai Department Store]

South Korea’s major retailer Hyundai Department Store Group Co. will seek to establish a single holding company system where Hyundai G.F. Holdings Co. will control all of the group affiliates.

Hyundai G.F. Holdings said in a disclosure that it held a board meeting on Thursday and approved the plan to buy shares of Hyundai Green Food Co. and Hyundai Department Store Co. through tender offers and issue new shares through investment in kind.

The holding company plans to make an in-kind investment in Hyundai Department Store to incorporate both Hyundai Green Food and Hyundai Department Store as subsidiaries, in addition to the planned in-kind investment in Hyundai Green Food.

The capital increase was a resolution from the board and did not go through a shareholder meeting.

On Thursday, shares of Hyundai Department Store rose to 51,700 won ($39.5) at about 11 a.m., from 51,500 won, following the disclosure. Shares, however, closed at 51,400 won, down 0.39 percent from the previous trading day.

In an in-kind capital increase, a company issues its own shares as consideration for purchasing stocks, instead of using cash, according to the exchange ratio.

According to the report of tender offer published on Thursday, Hyundai G.F. Holdings will issue new shares of its own stock in exchange for the purchase of 10,125,700 Hyundai Green Food shares at 12,620 won per share, and 4,669,556 Hyundai Department Store shares at 50,463 won per share.

The number of new shares to be issued may vary depending on the scale of the tender offer.

The tender offer will take place between August 11 and September 1. If the tender offer is carried out as planned, Hyundai G.F. Holdings will become the largest shareholder with a 40 percent stake in Hyundai Green Food and a 32 percent stake in Hyundai Department Store.

Hyundai Department Store Group Chairman Chung Ji-sun [Photo provided by Hyundai Department Store]

Upon completion of the in-kind capital increase, Hyundai Department Store Group will have a streamlined single government structure under Hyundai G.F. Holdings led by Chairman Chung Ji-sun and Vice Chairman Chung Kyo-sun.

As a holding company, Hyundai G.F. Holdings will focus on managing the group’s overall business portfolio, investment and risk management, management efficiency, and providing direction for new businesses.

Affiliates such as Hyundai Department Store and Hyundai Green Food, in the meantime, will focus on advancing their respective businesses with growth strategies tailored to each of them.

In February, Hyundai Department Store proposed establishing a holding company and splitting itself into a separate subsidiary during an extraordinary shareholders’ meeting.

However, the proposal, which included the group’s key subsidiary Han Moo Shopping Co. under the proposed holding company, was rejected due to concerns among shareholders.

“We plan to secure a stake more than 30 percent in Hyundai Green Food and in Hyundai Department Store in accordance with the relevant law through tender offers and in-kind investment,” said an official from Hyundai G.F. Holdings.

Industry insiders believe that the group’s decision will have a positive impact on the Hyundai Department Store shareholders.

Hyundai G.F. Holdings will no longer need to seek the sale of its 12.1 percent stake in the company, and shareholders will see an increase in dividends.

“According to the requirements of listed companies, Hyundai G.F. Holdings was required to either sell its entire 12 percent stake in the department store or acquire more than 30 percent,” said an unnamed industry insider. “The decision to acquire 30 percent through the tender offer eliminated the possibility of overhang.”

Analysts noted that the group’s governance restructuring has paved the way for the solid management system led by the Chung brothers, with Chairman Chung Ji-sun leading Hyundai Department Store and Vice Chairman Chung Kyo-sun leading Hyundai Green Food.