Uncertainty looms over Celltrion Group merger as stock prices falter

[Courtesy of Celltrion]

Shares of Celltrion Inc. and Celltrion Healthcare Co. remain sluggish, emerging as a last-minute variable to the planned merger between the two companies.

The weak stock prices come one week ahead of the start date for exercising claims for stock purchases from shareholders against the merger between Celltrion and Celltrion Healthcare.

The shares are still trading about 4 percent below the claims’ reference prices, heightening the possibility of small shareholders expressing their dissent.

Shares of Celltrion closed at 144,500 won ($107) on Monday and Celltrion Healthcare at 64,800 won. The prices are lower than the claim reference prices of 158,130 won and 67,251 won, respectively.

Celltrion Group’s merger proposal in August had sparked discontent among small shareholders who believed the claim reference prices were inadequate. However, since the announcement, there have been scarce trading days where prices surpassed the reference levels.

Celltrion Group allocated a 1 trillion won limit for claims for stock purchasing. This represents approximately 3 percent of the current combined market capitalization of the two companies. Yet, the weak market momentum suggests that 1 trillion won may not be sufficient to address all the claims.

For small shareholders who lack faith in the merger’s synergy and its potential to increase shareholder value, exercising their claims now to sell at higher prices may seem more appealing.

There is precedent in Korea for mergers between two companies being thwarted by massive claims for stock purchasing.

In 2014, when Samsung Group was pursuing a merger between Samsung Heavy Industries and Samsung Engineering, an abundance of claims for stock purchasing at lower prices led to the merger’s cancellation.

In the case of the Celltrion merger, the small shareholders hold significant sway.

An analysis of the shareholder composition at Celltrion Group by Kiwoom Securities Co. showed that small shareholders account for 66.43 percent of the entire makeup as of the first half of 2023. In Celltrion Healthcare, small shareholders represent 56.42 percent of the total.

Most shareholder advisory firms have recommended approval of the merger, aligning with the institution’s views. Consequently, institutional investors are expected to favor the merger.

Ultimately, the success of the Celltrion Group merger hinges on how many small shareholders choose to hold on until merger synergy materializes as a boost in stock prices versus those who opt for a stop loss strategy. The proportion of each group will be a critical factor in determining the merger’s fate.