OCI-Hanmi merger aims for Korean version of Bayer

OCI Group, a chemical, solar power and electric car battery material maker, looks to merge with drugmaker Hanmi Pharmaceutical Group, as the two entities seek business synergies to create the Korean version of Bayer, the German chemicals-to-pharmaceuticals giant.

On Friday, OCI Holdings and Hanmi Science, the holding units of the two entities, made a surprise announcement that they were merging through a stock acquisition and new share issuances.

Under the agreement, OCI Holdings is to acquire a 27 percent stake in Hanmi Science, and key shareholders of Hanmi Science, including its President Lim Ju-hyun, will acquire a 10.4 percent stake in OCI Holdings in return.

The merger comes as Hanmi Pharmaceutical reportedly tapped OCI Group for integration possibly for the founding family to secure cash to pay inheritance tax of about 500 billion won ($376 million), following the death of former Chairman Lim Sung-ki.

“It’s positive that concerns over a potential market overhang have ended for Hanmi Pharmaceutical,” Park Jae-kyung, a researcher at Hana Securities, said in a report. Previously, the group’s stock price, particularly that of holdings company Hanmi Science, was undervalued in the market largely due to potential selling pressure related to inheritance tax payments.

However, on the backdrop of the merger, Hanmi Science’s stock price on Monday jumped 12.7 percent to 43,300 won, from 38,400 won on Friday, possibly on hopes of rerating its corporate value.

Hanmi Pharmaceutical, the drug development unit of Hanmi, is also expected to benefit from the merger, as the company will be able to secure more research and development funding, leveraging the financial resources of OCI.

In 2022, the annual operating profit of OCI Holdings came to 976.7 billion won. The group's cashable assets as of the third quarter also reached over 1 trillion won, according to regulatory filings. Lee said, “OCI Group’s financial resources will speed up Hanmi Pharmaceutical’s development of new drugs.”

“No plan has been made after the merger, but Hanmi Pharmaceutical is expected to be able to secure more money for its R&D,” a source familiar with the matter confirmed.

The merger will allow Hanmi Pharmaceutical to utilize its global network as well. OCI Group currently operates mainly in the US, Japan and Southeast Asia. “Hanmi Pharmaceutical will be able to expand its overseas sales through utilizing OCI’s global network,” Park added.

Through the merger, OCI Group will seek to expand its drug business. “OCI Group’s main businesses, involving chemical materials, have low growth potential. The merger with Korea’s leading drug developer will provide them with a new growth engine,” OCI Group Chairman Lee Woo-hyun said in an interview with a local daily.

OCI Group has been interested in the pharmaceuticals industry for several years. Chairman Lee said OCI Group have envisioned an entry into the life science sector since six years ago.

In 2022, OCI Group secured an 11.2 percent stake in Bukwang Pharm for 146.1 billion won, becoming the largest shareholder of the drugmaker, and the latest merger with Hanmi is also in line with that strategy.

Lee said OCI Group will “follow suit after Bayer, a German company that started as a chemicals firm yet successfully made its successful entry into the pharmaceuticals industry,” Lee said.

The integrated group will undergo reorganization and form a joint board with two internal directors -- Lee, the chairman of OCI, and Lim, the president of Hanmi Science.

But their leadership will remain unchanged. Lee will continue to oversee OCI's materials and renewable energy businesses, and Song and Lim will continue to run Hanmi's pharmaceuticals businesses.

According to the Fair Trade Commission, OCI Group ranked 38th among the nation's companies in terms of market capitalization, at about 12.3 trillion won as of 2023. In the meantime, Hanmi is considered one of the top five drugmakers in Korea, with an estimated market value of 4.45 trillion won.