PharmaResearch’s decision to scrap equity spin-off plan welcomed; Two further steps needed
Board upgrade is essential; appointing two children of the Chairman in their 30s as directors is inappropriate
Were succession and spin-off plans discussed prior to last year’s CVC Capital investment decision?
On July 8th, PharmaResearch announced the abandonment of its equity spin-off plan, which had initially received board approval on June 13th. The company has officially withdrawn the proposal. Our Forum strongly welcomes this decision by controlling shareholder and Board Chairman Jung Sang-Soo, along with the board.
The market's immediate reaction underscored the positive impact of this reversal: PharmaResearch's stock price surged by 11% on the same day, closing at W576,000. This translated to a remarkable W625 billion increase in market capitalization. While the company had initially asserted that the spin-off would boost shareholder value, the market's response clearly indicated otherwise. This case serves as a compelling illustration of the strengthened fiduciary duties of board members under the recently amended Commercial Act, particularly when the interests of controlling shareholders diverge from those of minority shareholders.
On June 26th, our Forum released a statement titled:
We urge PharmaResearch cancel equity spin-off plan
Minority shareholders suffer from structural coercion
-PharmaResearch’s spin-off plan appears to challenge President Lee Jae-myung’s warning against dual listings
-Equity spin-off forces existing shareholders into undesired choices due to an oppressive structure by controlling shareholder, against protection of shareholder rights
-Creating shareholder hierarchies (controlling family > private equity fund > minority shareholders) breach equal treatment of shareholders
-CVC Capital that owns two seats on the board, should stop extratracting value at the expense of minority shareholders; CVC should become long-term partner of Korean capital market
-Appointing founder and BoD Chairman Jung Sang-Soo’s two children to PharmaResearch’s board undermines its independence
As outlined in PharmaResearch’s “Message to Shareholders” on July 8th, to accelerate global expansion, pursue strategic investments, and drive new business initiatives, two critical actions must be taken transparently and promptly, in our view.
First, the Board of Directors requires a complete upgrade to elevate its capabilities and independence. The current board structure and composition are simply inadequate to steer PharmaResearch toward its stated goal of becoming a global healthcare leader. Notably, two of the nine board members are Chairman Jung's young children: Director Jung Rae-Seung (36 years old) and Director Jung Yujin (34). This means three of the four internal directors are from the Jung family. Appointing such young, inexperienced, related family members to the board of a publicly listed company is inappropriate and demonstrates a clear disregard for minority shareholders.
It's fair to question whether Chairman Jung truly grasps the role of a director and acknowledges the independence essential for a board that exists to safeguard shareholder interests. Consider Apple, a globally respected tech leader with good corporate governance. At the pinnacle of its governance, Apple's board outlines eleven director skills, categorized into Core (leadership, corporate governance, risk management, financial) and Strategic (global business and operations, brand & marketing, people and culture, innovation and technology, environmental & climate, public policy and government, and privacy and security).
PharmaResearch should drastically reduce its number of internal directors. Instead, in line with its W6 trillion market capitalization, it needs to attract independent directors with extensive experience in global healthcare, brand marketing, capital markets, and corporate governance. The recruitment of foreign directors with MNC backgrounds would be an even greater asset, bringing diverse global perspectives to the board.
Second, financial authorities should closely examine the details (and possible side agreements) of the third-party placement between PharmaResearch and CVC Capital signed in October last year. It’s critical to verify whether scenarios involving a spin-off as well as transition into a holding company structure were discussed during CVC’s due diligence process.
In October 2024, PharmaResearch issued 1,175,647 redeemable convertible preferred shares (RCPS) to CVC at W170,000 per share, raising W200 billion. CVC currently holds two non-executive directorships of the nine-member board. Notably, these two directors voted in favor of both the initial June 13th spin-off plan and its subsequent withdrawal on July 8th, aligning with the internal directors.
There appears to be a fundamental issue with the board's decision-making process. It approved an investment agreement in October last year that seemingly disadvantaged minority shareholders. CVC's RCPS come with voting rights, conversion rights after one year, and redemption rights after three years. These terms inherently create a conflict of interest with the common equity shareholders.
Last fall, prior to the third-party capital increase, PharmaResearch already had ample cash reserves and was expected to generate significant, consistent free cash flow. Yet, despite claiming CVC would be a partner to support global business expansion, PharmaResearch—although the company doesn’t need additional funding in our view—entered an agreement that diluted 10% of its shares and granted CVC two board seats. The rationale behind this decision was unclear. For a financially strong listed company like PharmaResearch, issuing such a large volume of RCPS is highly unusual. Without the CVC’s investment, relying solely on the controlling shareholder’s 30%+ stake and lacking an additional 10% ally, could the company confidently pass a special resolution at the shareholders’ meeting?
Private equity funds, during due diligence, rigorously inquire about succession plans, especially for family-run businesses. In Asia, particularly in Korea, discussions about succession often focus on the founder’s retirement timeline and the timing and scope of the second or third generation’s involvement in management. These discussions are frequently documented as well. We note that if the spin-off plan were to succeed, nearly half of the proposed holding company's net assets of W401.6 billion would have come from the W200 billion investment by CVC’ last November. Is this a mere coincidence? It is a fact that CVC’s investment served as a decisive basis for the spin-off ratio (74:26 between holding company and operating company) set by the company.
July 22nd, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee
PharmaResearch’s decision to scrap equity spin-off plan welcomed; Two further steps needed
Board upgrade is essential; appointing two children of the Chairman in their 30s as directors is inappropriate
Were succession and spin-off plans discussed prior to last year’s CVC Capital investment decision?
On July 8th, PharmaResearch announced the abandonment of its equity spin-off plan, which had initially received board approval on June 13th. The company has officially withdrawn the proposal. Our Forum strongly welcomes this decision by controlling shareholder and Board Chairman Jung Sang-Soo, along with the board.
The market's immediate reaction underscored the positive impact of this reversal: PharmaResearch's stock price surged by 11% on the same day, closing at W576,000. This translated to a remarkable W625 billion increase in market capitalization. While the company had initially asserted that the spin-off would boost shareholder value, the market's response clearly indicated otherwise. This case serves as a compelling illustration of the strengthened fiduciary duties of board members under the recently amended Commercial Act, particularly when the interests of controlling shareholders diverge from those of minority shareholders.
On June 26th, our Forum released a statement titled:
We urge PharmaResearch cancel equity spin-off plan
Minority shareholders suffer from structural coercion
-PharmaResearch’s spin-off plan appears to challenge President Lee Jae-myung’s warning against dual listings
-Equity spin-off forces existing shareholders into undesired choices due to an oppressive structure by controlling shareholder, against protection of shareholder rights
-Creating shareholder hierarchies (controlling family > private equity fund > minority shareholders) breach equal treatment of shareholders
-CVC Capital that owns two seats on the board, should stop extratracting value at the expense of minority shareholders; CVC should become long-term partner of Korean capital market
-Appointing founder and BoD Chairman Jung Sang-Soo’s two children to PharmaResearch’s board undermines its independence
As outlined in PharmaResearch’s “Message to Shareholders” on July 8th, to accelerate global expansion, pursue strategic investments, and drive new business initiatives, two critical actions must be taken transparently and promptly, in our view.
First, the Board of Directors requires a complete upgrade to elevate its capabilities and independence. The current board structure and composition are simply inadequate to steer PharmaResearch toward its stated goal of becoming a global healthcare leader. Notably, two of the nine board members are Chairman Jung's young children: Director Jung Rae-Seung (36 years old) and Director Jung Yujin (34). This means three of the four internal directors are from the Jung family. Appointing such young, inexperienced, related family members to the board of a publicly listed company is inappropriate and demonstrates a clear disregard for minority shareholders.
It's fair to question whether Chairman Jung truly grasps the role of a director and acknowledges the independence essential for a board that exists to safeguard shareholder interests. Consider Apple, a globally respected tech leader with good corporate governance. At the pinnacle of its governance, Apple's board outlines eleven director skills, categorized into Core (leadership, corporate governance, risk management, financial) and Strategic (global business and operations, brand & marketing, people and culture, innovation and technology, environmental & climate, public policy and government, and privacy and security).
PharmaResearch should drastically reduce its number of internal directors. Instead, in line with its W6 trillion market capitalization, it needs to attract independent directors with extensive experience in global healthcare, brand marketing, capital markets, and corporate governance. The recruitment of foreign directors with MNC backgrounds would be an even greater asset, bringing diverse global perspectives to the board.
Second, financial authorities should closely examine the details (and possible side agreements) of the third-party placement between PharmaResearch and CVC Capital signed in October last year. It’s critical to verify whether scenarios involving a spin-off as well as transition into a holding company structure were discussed during CVC’s due diligence process.
In October 2024, PharmaResearch issued 1,175,647 redeemable convertible preferred shares (RCPS) to CVC at W170,000 per share, raising W200 billion. CVC currently holds two non-executive directorships of the nine-member board. Notably, these two directors voted in favor of both the initial June 13th spin-off plan and its subsequent withdrawal on July 8th, aligning with the internal directors.
There appears to be a fundamental issue with the board's decision-making process. It approved an investment agreement in October last year that seemingly disadvantaged minority shareholders. CVC's RCPS come with voting rights, conversion rights after one year, and redemption rights after three years. These terms inherently create a conflict of interest with the common equity shareholders.
Last fall, prior to the third-party capital increase, PharmaResearch already had ample cash reserves and was expected to generate significant, consistent free cash flow. Yet, despite claiming CVC would be a partner to support global business expansion, PharmaResearch—although the company doesn’t need additional funding in our view—entered an agreement that diluted 10% of its shares and granted CVC two board seats. The rationale behind this decision was unclear. For a financially strong listed company like PharmaResearch, issuing such a large volume of RCPS is highly unusual. Without the CVC’s investment, relying solely on the controlling shareholder’s 30%+ stake and lacking an additional 10% ally, could the company confidently pass a special resolution at the shareholders’ meeting?
Private equity funds, during due diligence, rigorously inquire about succession plans, especially for family-run businesses. In Asia, particularly in Korea, discussions about succession often focus on the founder’s retirement timeline and the timing and scope of the second or third generation’s involvement in management. These discussions are frequently documented as well. We note that if the spin-off plan were to succeed, nearly half of the proposed holding company's net assets of W401.6 billion would have come from the W200 billion investment by CVC’ last November. Is this a mere coincidence? It is a fact that CVC’s investment served as a decisive basis for the spin-off ratio (74:26 between holding company and operating company) set by the company.
July 22nd, 2025
Korean Corporate Governance Forum
Chairman, Namuh Rhee