February 21, 2020

CJ CheilJedang disciplined by FTC for triangular merger in corporate restructuring

PUBLISHED : December 02, 2019 - 15:12

UPDATED : December 02, 2019 - 17:05

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CJ CheilJedang on Nov. 20 was given a disciplinary order by the Fair Trade Commission for irregularities in its corporate restructuring, primarily for a merger that turned its key logistics arm CJ Logistics into CJ Corp.’s second-tier indirect subsidiary, FTC said Dec. 1.

A company called Youngwoo Frozen Foods, which merged into CJ CheilJedang in April 2018, was accused of violating the Monopoly Regulation and Fair Trade Act, because it owned shares in the parent company and firms affiliated to the conglomerate but not recognized as third-tier subsidiary.

The FTC order means it will take legal action against CJ’s food arm if it breaks the regulation again. 

The irregularities took place for over 70 days during the merger process, according to the FTC.

CJ CheilJedang carried out a forward triangular merger of the then wholly owned Youngwoo Frozen Foods and CJ CheilJedang’s sister company KX Holdings. According to the plan, KX Holdings merged into Youngwoo in March, a month prior to Youngwoo’s merger with CJ CheilJedang.

In return for the merger, KX Holdings shareholders were to be given newly-issued shares of CJ CheilJedang, leading Youngwoo to buy some 1.9 million shares of CJ CheilJedang, an 11 percent stake, and own them for 15 days in February 2018.

The FTC said the process was a breach of the Fair Trade Act that bans an indirect subsidiary --Youngwoo -- from holding a stake in what was recognized as a direct affiliate of the conglomerate.

In March, Youngwoo became the surviving entity after it merged with KX Holdings. As a result, Youngwoo held stakes in seven domestic affiliates of CJ conglomerate, including CJ Logistics for 56 days from March 2018, which the FTC said was also against the law.

This continued until Youngwoo’s merger with CJ CheilJedang in April 2018.

The tactic -- aimed at merging with a sister company using a subsidiary -- was made legal under the revision of Commercial Act in Korea since 2012.

But buying and owning its affiliates’ shares for the scheme is not exempted by the Fair Trade Act. The FTC said the ruling is meant to stress that any action not recognized as an exemption is subject to punishment, under the legal framework that adopts a “positive list” system, although the triangular merger tactic is in itself deemed legal.

By Son Ji-hyoung (

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