OCI-Hanmi merger to create Korea’s Bayer: OCI Chairman

Merging into one team, OCI Group and Hanmi Pharmaceutical Group will leap forward to be a global novel drug manufacturing and biotechnology innovator, said the chief of the South Korean chemicals giant that also owns photovoltaic polysilicon and electric vehicle battery businesses.  

“We will follow in the path of Germany’s Bayer, which has turned into a global pharmaceutical and biotech behemoth from a petrochemical company,” OCI Holdings Co. Chairman Lee Woo-hyun said in an exclusive interview with The Korea Economic Daily on Sunday.

“OCI’s mainstay businesses, the chemicals and materials sectors, have little room to grow so will soon reach their limits,” added Lee, explaining the rationale behind Korea’s No. 1 polysilicon company’s merger with the country’s No. 5 pharmaceutical group Hanmi, which was announced last Friday. 

Under the agreement, OCI Holdings, the holding company of OCI Group, will acquire a 27.0% stake in Hanmi Pharmaceutical’s holding company Hanmi Science Co., including an 8.4% new stake, at 770.3 billion won ($587.3 million) while principal shareholders of Hanmi Science, including Hanmi Pharmaceutical Co.'s President Lim Ju-hyun, will acquire a 10.4% stake in OCI Holdings.

Each company will appoint two internal directors, including each of their CEOs, to form a joint five-person board of directors for the new entity. OCI Chairman Lee and Hanmi President Lim will be the CEOs.

“When I got the Hanmi merger offer late last year, I thought the merged entity would not be worth it without (members of) the owner family, which has nurtured Hanmi as a leading pharmaceutical company,” said Lee. “After I confirmed that Hanmi Chairwoman Song Young-suk and President Lim were willing to join management, our deal has gained traction.”  

After the deal closes, OCI Holdings will be the holding firm of the merged group, while Hanmi Science will be an interim holding company overseeing the pharmaceutical and biotech businesses as subsidiaries.

OCI’s advanced materials and renewable energy businesses are expected to be placed under another interim holding entity.

The new entity plans to set sail with a new name and corporate identity in March of next year.

“OCI’s ample cash-generating capability will be a big help to Hanmi’s novel drug development, which costs a lot,” said Lee. “Hanmi’s exports are also expected to grow if it uses the global network of OCI, which generates 80% of its total revenue from overseas business.”

Hanmi generates less than 10% of its total revenue from overseas markets.

NEW GROWTH ENGINE AMID CHINA’S ASCENT

OCI has chosen medicine and bio as its next growth engine that could help it hold onto its wide technology lead over Chinese companies, which are rapidly catching up to the Korean chemical company in the chemical sector, Lee said.

In an aging world, life science is also a promising sector, added Lee.

In 2022, OCI acquired Bukwang Pharm Co., a mid-size Korean pharmaceutical company but the chemical company needed a bigger partner, said Lee.

With Hanmi Pharmaceutical owning more than 30 new drugs in the pipeline, Lee expected OCI would take a big stride as a biotech company.

Considering that Hanmi Pharmaceutical spends about 150 billion won in research & development annually, OCI Holdings’ stable earnings would further accelerate Hanmi’s novel medicine development.

The chemical holding company earned 976.7 billion won in operating profit in 2022.

“We will strive to contribute to Korea’s rise as a global bio powerhouse by launching a new diabetes medicine under development by Hanmi,” said Lee.

POSSIBLE FAMILY FEUD

But it remains to be seen whether Lee’s grand plan would take off without a stumble.

Immediately after OCI and Hanmi announced their integration, the family-controlled pharmaceutical giant’s other family members opposed it.

Lim Jong-yoon, the eldest son of the late Hanmi Pharmaceutical founder and Chairman Lim Sung-ki, said he would seek to replace Hanmi Science’s board members who led the deal with OCI at an extraordinary shareholders’ meeting if needed.

“It is wrong to make such an important management decision without a single consultation with shareholders and other executives and employees,” Lim said during an interview with The Korea Economic Daily on Sunday.

Lim Jong-yoon is the older brother of Lim Ju-hyun, Hanmi's president who has led the OCI deal with her mother and Hanmi Chairwoman Song.

Eldest son Lim Jong-yoon stepped down as Hanmi Science CEO in March 2022. He owns a 9.91% stake in Hanmi Science but is not an inside board director.

He is now in discussions with his younger brother Lim Jong-hoon in response to the OCI-Hanmi merger, which they found out about a day after the announcement, according to sources.

The two sons jointly hold a 20% stake in Hanmi Science, whereas their mother and Chairwoman Song Young-suk and sister Lim Ju-hyun own a combined 27% stake in Hanmi Group.

Lim Ju-hyun is now Hanmi Science's president of Strategy & Planning.

Lim Jong-yoon has hinted that he will refrain from a family dispute over management control for now.

“Credibility is important in the pharmaceutical business so we will go all out to normalize the company’s management without causing unnecessary trouble,” Lim said.

He is said to be seeking solutions to deal with the OCI-Hanmi marriage with activist funds.

Hanmi Science shares on Monday shot up 12.8% to close at 43,300 won, while Hanmi Pharmaceutical shares shed 4.3% to 338,000 won. OCI Holdings shares also fell 4% to 104,600 won.

Write to Woo-Sub Kim and Ji-Hyun Lee at duter@hankyung.com

Sookyung Seo edited this article.