The POSCO group is pushing for a switch to a holding system. It intends to create an investment-type holding company to strengthen its new environmentally friendly companies and thus increase its business value.
The group announced on December 1 that it would put governance reform on the agenda for a board meeting scheduled for December 10. If the proposal is approved by the board of directors, it will present it to a shareholders’ meeting early next year.
However, the group has not finalized the method to transform itself into a governance structure. It weighs two options – a split and a split.
At POSCO Group, POSCO actually serves as a holding company. POSCO has holdings in major subsidiaries, including POSCO Chemical (61.3%), POSCO E&C (52.8%) and POSCO International (62.9%).
POSCO cited three reasons for its transition to a holding company: responding to green trends, increasing investment in new businesses, including secondary battery materials and hydrogen, and reassessing its business value in the stock market.
POSCO believes internally that its enterprise value is not properly assessed despite its strong business performance. It reported operating profit of 6.87 trillion won on a consolidated basis in the first three quarters of 2021. Despite this impressive performance, the POSCO share price fell by around 410,000 won in May. at the average of 200,000 won. POSCO was excluded from the top 10 companies in terms of market capitalization. POSCO’s share price gained 6.13% on December 1, supported by the announcement of its transition to a holding company.
Analysts say POSCO will face a difficult road in promoting governance reform. POSCO shares are widely distributed, with only the National Pension Service (9.75 percent) and Citibank (7.3 percent) holding more than 5 percent of the capital.
If POSCO takes a split-off approach, in which the parent company distributes the shares of the splitting subsidiary to its existing shareholders on a pro rata basis, this can cause two problems.
Under current law, a holding company is required to own more than 30 percent of a subsidiary, starting next year. Currently, POSCO’s treasury stock represents around 13 percent of its total stock. This means that it is necessary to obtain a 17 percent stake in the derivative from the existing shareholders.
Another issue is that due to POSCO’s widely distributed capital structure, the company could be exposed to takeover threats.
In the event of a spin-off, the key is to persuade existing shareholders to remain shareholders. Institutional investors, including the National Pension Service, are negative about returning the surviving company to the stock market after a spin-off. “The National Pension Service’s decision will determine whether or not POSCO can transition to a holding company,” said a pension fund industry insider. “The key is to convince shareholders that governance reform will not undermine shareholder value. “