Succession at Korean family-controlled conglomerates -- notorious for their complicated cross-shareholdings among affiliates -- tends to result in a tragicomedy drama, especially when there are many offspring involved.
However, the result could play out differently in food and entertainment giant CJ Group.
Since it officially split from Samsung Group in 1997, the group has established a simple holding company structure governed by group chairman Lee Jay-hyun, the eldest grandson of late Samsung founder Lee Byung-Chull.
In addition, the conglomerate has just one heir apparent, Lee Sun-ho, the chairman’s only son, said an expert on corporate governance here.
The succession issue at CJ is in the spotlight again due to the absence of the ailing chairman at his 26-year-old son’s wedding last Saturday.
The senior Lee, 56, suffers from complications stemming from a kidney transplant. To make matters worse, he has been in a legal battle against charges over embezzlement, breach of fiduciary duty and tax evasion since 2013.
“Considering the simple governance and family structure at CJ, the only and biggest issue for power transfer seems to be a big tax bill expected in transferring the chairman’s 42.14 percent stake in CJ Corp., the holding company of the group, to the successor,” Hyundai Securities analyst Chun Yong-ki said.
Based on the current stock value of CJ Corp., market watchers said the wealth transfer tax is forecast to reach up to 1.4 trillion won ($1 billion). The chairman’s son does not have any stake in CJ Corp. yet and it is inevitable that he will face massive costs if he acquires majority shares.
“The chairman’s transfer of his shares at CJ OliveNetworks, a unlisted affiliate of the group with growth potential, to his son and other family members last year hinted that the group will seek a cost-saving way for succession so it can avoid the massive wealth transfer tax bill,” Chun said.
With the move, shareholdings of the chairman’s son in CJ OliveNetworks soared to 15.84 percent. He became the second largest shareholder, following CJ Corp. with a 76 percent stake.
CJ OliveNetworks was established in 2014 through a merger between two CJ subsidiaries. CJ Olive Young, the nation’s biggest drugstore chain operator, took over CJ Systems, an information and technology service provider, for a business win-win.
Sales of the merged company soared to 1.14 trillion won last year, a 171 percent increase from a year ago, according to the company’s data.
“The group will make all-out efforts for the growth of CJ OliveNetworks, which will generate cash to cover the succession cost,” Chun said, adding that a stock listing of next year is possible to maximize the company’s value.
“A merger between CJ Corp. and CJ OliveNetworks could be another option for Sun-ho who is seeking a stake in the holding company.”
In the meantime, CJ Group declined to comment on the succession issue. It said that regarding management issues, its top priority is the final verdict of the top court on the chairman’s prison term, which will minimize the fallout on the company from the prolonged leadership vacuum.
The CJ chief has filed an appeal to the Supreme Court for the second time in a bid to avoid the 30-month jail term he received last December.
By Seo Jee-yeon (
jyseo@heraldcorp.com)