Kolmar Korea said it would sell its pharmaceutical business unit and Kolmar Pharma, a subsidiary of the company, to IMM Private Equity, one of the nation’s largest private equity funds.
The company publicly announced on Wednesday that it would hand over all of its shares in Kolmar Pharma and its pharmaceutical business unit for 512.4 billion won ($423.4 million) -- 176.1 billion won for Kolmar Pharma and 336.3 billion won for Korea Kolmar's business unit.
Kolmar Korea said that its toothpaste business, which is part of its pharmaceutical business unit, will not be included in the sale.
"The sale of the pharmaceutical business is to improve the company's financial structure and reorganize the group's business platform," the company said. Through the sale of its pharma business, the company plans to focus on its cosmetic business, while consolidating its pharmaceutical business through its subsidiary HK inno.N, formerly known as CJ Healthcare.
The two companies plan to finalize the procedure by July 31.
According to industry experts, Kolmar Korea is likely to use parts of the funds obtained from the sellout to repay the company's debt incurred by acquiring HK inno.N. Kolmar Korea acquired a 100 percent stake in CJ Healthcare for 1.3 trillion won in April 2018
At the time, Kolmar Korea raised 350 billion won from the financial investors in the form of redeemable convertible preference shares, 600 billion won through acceptance financing, and 300 billion won through the general arrangement and issuance of short-term electronic bonds.
Kolmar Korea's annual financial expenses were estimated to have increased by about 40 billion won due to the business transactions, while its total debt and net debt reached 1.5 trillion and 994 billion won, respectively, in 2019. Such liabilities increased the company's annual interest expense to 53.4 billion won, almost half of the company's operating profit during that year (117.8 billion won).
"Assuming financial costs of 4 to 4.5 percent, the sellout of its pharmaceutical business is likely to reduce its debt by more than 300 billion won and reduce financial expenses by about 13 billion to 15 billion won annually," said Na Eun-chea, an analyst at Korea Investment & Securities. "Although the financial burden is reduced, the sales of the pharmaceutical division, which has been grown steadily annually, will likely have an impact on overall earnings of the company."
Its sales and operating profits are expected to decrease by 13 and 15 percent, respectively, next year, Na added.
“The sellout of our pharmaceutical unit is part of our developmental restructuring of the pharmaceutical business from a long-term perspective,” a company official told Korea Biomedical Review. “Our financial structure is expected to improve by repaying short-term debts, and the company plans to go ahead with new businesses through the new funds acquired from this deal.”
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