Celltrion Group decides against merger between Celltrion and Celltrion Pharm

Celltrion Group said on Monday that it would not proceed with the merger between Celltrion and Celltrion Pharm at this time.

The decision comes after the review by a special committee, which was established to assess the viability of the merger.

The special committee conducted a comprehensive evaluation from July 31 to last Friday, which included a shareholder survey, external evaluations by accounting firms, and internal assessments with the participation of a global consulting firm.

The review focused on five key factors -- merger synergies, financial and non-financial risks, capital aspects, business feasibility, and shareholder opinions.

The shareholder survey revealed contrasting views between the shareholders of the two companies.

A majority of Celltrion shareholders expressed opposition to the merger, with only 8.7 percent in favor, 36.2 percent against, and 55.1 percent abstaining.

When the votes were adjusted to include the shares held by major shareholders, the opposition rose to 70.4 percent, and when combined with abstentions, 96 percent of shareholders were not in favor of the merger.

Key concerns among opposing shareholders included dissatisfaction with the current merger ratio and the perceived lack of substantial benefits from merging with a subsidiary.

In contrast, 67.7 percent of Celltrion Pharm shareholders supported the merger, with 9.8 percent opposing and 22.6 percent abstaining.

Supporters cited the potential for the merged entity to grow into a comprehensive biopharmaceutical research company and create synergies in new drug development.

Celltrion Group stressed that the major shareholders, including Chairman Seo Jung-jin and Celltrion Holdings, maintained a neutral stance as previously promised, ultimately aligning their voting power with the majority shareholder opinion.

In addition to the shareholder survey, the special committee conducted an independent and objective evaluation through external and internal assessments.

According to the committee, the external review by an accounting firm found that while Celltrion Pharm has significant growth potential in antibody drug sales, contract manufacturing (CMO), and antibody-drug conjugate (ADC) development, the company's performance has yet to be concretized.

The evaluation suggested that the appropriate timing for a merger would be when these growth plans materialize and can be clearly communicated to the market.

Regarding financial risks, the potential loss of Celltrion's treasury shares in the event of a merger was seen as a limitation on future growth capital, with a slight deterioration in the merged entity's financial metrics anticipated.

Non-financial risks were also considered, with the analysis indicating that while some internal transaction risks could be mitigated, organizational management risks might increase due to the absorption of business units.

The financial review also noted that, given the overwhelming opposition or abstention from Celltrion shareholders, the exercise of appraisal rights by dissenting shareholders could lead to a significant outflow of funds, potentially exceeding the levels seen in the previous merger between Celltrion and Celltrion Healthcare.

This could severely impact financial stability due to the costs associated with financing the buyback of shares.

"With the decision not to pursue the merger at this time, both companies will now focus on their core operations to foster growth and generate synergies within the group," a company official said. "The possibility of integration remains open if shareholders desire it in the future, and we will continue to prioritize shareholder value as we drive growth."