As a third revision to South Korea’s Commercial Code nears passage, pharmaceutical and biotech companies are moving faster to reorganize their treasury stock holdings. The proposal centers on making treasury stock cancellations mandatory, prompting companies to adjust plans for cancellations or share swaps.
Industry officials said the government is pushing a bill that would require newly acquired treasury shares to be canceled within one year, and existing holdings to be canceled after a six-month grace period. Pharma and biotech firms are preparing responses.
Celltrion said it plans to cancel 6.11 million shares, excluding about 3 million shares set aside for compensation such as stock options, from its 12.34 million treasury shares. It also said it aims to reach an average shareholder return rate of 40% by 2027.
Yuhan Corp. last month disclosed a decision to cancel treasury shares worth 36.2 billion won, following a 25.3 billion won cancellation in May last year. Under its “Value-up” program, the company has said it will cancel 1% of its outstanding common shares by 2027 and raise dividends per share by more than 30% in total compared with 2023.
Some companies have opted for swaps instead of cancellations. Treasury shares held by a company carry no voting rights, but swapping them can create friendly stakes. Many listed pharma and biotech companies have friendly stakes for their largest shareholders of around 30%.
Daewoong, the holding company of Daewoong Pharmaceutical, in December swapped treasury shares worth 13.8 billion won with Kwangdong Pharmaceutical, citing cancer-drug co-promotion and joint development of new drugs. Daewoong then transferred 564,745 treasury shares to U2Bio through an in-kind contribution. Kwangdong Pharmaceutical, in addition to the swap with Daewoong, sold 3.82% of its treasury shares to business partner Dongwon Systems. Samjin Pharmaceutical carried out a treasury-share swap with Ilsung IS, and Whanin Pharmaceutical conducted swaps with Dongkook Pharmaceutical, Jinyang Pharmaceutical and Kyungdong Pharmaceutical.
As such transactions have increased, some in capital markets have raised concerns. Swaps between companies with overlapping interests could be used to defend management control or avoid regulation, critics say. The industry has pushed back, saying the moves are strategic rather than an end run. An industry official said, “It’s true treasury stock transactions have increased compared with before, but it’s a strategic move for co-promotion.”
Jung Yoon-taek, head of the Korea Pharmaceutical Industry Strategy Institute, said the sector is more sensitive to changes in treasury stock policy. “Pharmaceutical companies have lower controlling shareholder stakes than other manufacturers, making them more vulnerable to changes in treasury stock policy,” he said, adding that “a certain level of ownership stability is needed in an industry that must sustain long-term R&D investment and tolerate high volatility.”
Kim Dae-jong, a professor of business administration at Sejong University, said canceling treasury shares can lift stock prices by reducing the number of shares, but could also threaten management control because South Korea does not have a dual-class share system. “Companies have no choice but to consider all of these structural pros and cons,” he said.
* This article has been translated by AI.
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