CJ ENM shelves content split-off plan; shares rise

South Korean entertainment powerhouse CJ ENM Co. has put its plan to split off its content business on the shelf in the face of growing opposition from investors amid a regulatory move to protect minor shareholders.

CJ, the producer of the Oscar-winning film Parasite, has also canceled a plan to carve out its music business as a separate subsidiary.

In November of 2021, the company unveiled a plan to separate its content production unit from its other major business, CJ O Shopping, an online shopping mall operator, as part of its corporate restructuring.

Under the proposed separation plan, CJ was supposed to combine its film, entertainment, animation production units under a single studio, and then list the new entity on the Korea Exchange as its subsidiary.

CJ already has a Kosdaq-listed drama production unit, Studio Dragon Corp.

The separation plan, however, raised concerns among investors who feared the split-off of CJ’s lucrative content business would undermine the value of their shareholdings in the parent company.

CJ ENM’s stock has fallen more than 15% within a week of its announcement of the plan, with some minority shareholders vowing to take action against it.

On Wednesday, the stock has risen as much as 11%, its highest percentage gain in nearly two years, to 139,800 won, on expectations that CJ will drop its content business split-off plan.

SCALE UP GLOBALLY

CJ ENM has been aggressively pursuing acquisitions, aiming to capitalize on the global success of K-content ranging from TV series and movies to pop music groups, while competing at home with Netflix as well as Disney Plus, which landed in Korea last year.

In mid-November, CJ said it is buying an 80% stake in Endeavor Content Parent LLC, a US-based entertainment and talent agency behind the production of Oscar-winning film La La Land, for $775 million. CJ said the purchase would strengthen its capabilities of content creation and efforts to grow its business globally.

CJ Group Chairman Lee Jay-hyun also said in November CN ENM will seek to set up additional production houses by genre to ride on the global popularity of Hallyu or the Korean Wave, as part of the conglomerate’s 10 trillion won investment plan to focus on four growth areas, including culture and platforms.

CJ ENM currently runs around 16 cable TV channels, including drama channel tvN and music channel Mnet as well as an over-the-top (OTT) platform TVing.

SPLIT-OFF UNDER REGULATORY SCRUTINY

Splitting off a profitable business and separately listing the new entity has been a key business tactic among Korean conglomerates to grant the new promising company a fair market value, which otherwise would often be buried in the parent’s enterprise value.

However, the method has come under regulatory scrutiny with smaller investors complaining that it only favors companies because they don’t have to hand out shares of the separated company to existing shareholders. A split-off could also help the parent company maintain its control over the separated unit when the new entity goes public, analysts said.

As a public outcry mounts, lawmakers have begun discussing banning the simultaneous parent-subsidiary listing, while the Korea Exchange and financial authorities have said they might take a close look at the matter. Even ruling and opposition party presidential candidates for the March 9 election have pledged measures to protect shareholders from practices of a listing after a split-off.

Other Korean companies have been either reconsidering their split-off plans or postponing the IPOs of their separated subsidiaries.

Kakao Corp., the operator of South Korea’s top mobile messenger KakaoTalk, recently said it will review the listings of Kakao Mobility Corp. and Kakao Entertainment Corp., which the parent company carved out as separate entities via spin-offs.

Executives of SK On, a battery maker spun off from SK Innovation Co. in October 2021, said they would not seek an IPO of the company in the near future.

Instead, SK Group is seeking to raise money for future investments through a pre-IPO share sale. Industry sources said earlier this week KKR & Co., The Carlyle Group and TPG Inc. have participated in preliminary bids for the pre-IPO share sale.

“When CJ ENM acquired CJ O Shopping for a merger in 2018, the company said the merger would strengthen its business synergy. If it’s going to separate it four years later, it should convince investors that they will benefit more from the split-off,” said a local brokerage analyst.

Write to Jun-Ho Cha at chacha@hankyung.com
In-Soo Nam edited this article.