LOTTE Confectionery Conducts 10-1 Stock Split
John Kim, March 9, 2016, 7:38 a.m.
Lotte Confectionery Co., a food unit that stands at a critical position in the cross-shareholding structure, plans to conduct a 10-for-1 stock split to boost trading among retail investors. According to the Korea Exchange and finance, investment industry, the board of directors of Lotte Confectionery decided to cut the face value of its common stock from 5,000 won to 500 won, which would increase its number by tenfold to 14.21 million upon its re-listing on May 17.
Lotte Group officials explain that the stock split was conducted to improve their corporate image through stockholder-friendly policies, and at the same time increase their enterprise value by leading a tick up of their stock prices through the activation of stock trading.
Industry watchers see that the decision was made as an effort of Lotte Group trying to restore their corporate image which was tarnished by the lengthy succession feud, by pushing various shareholder-friendly policies.
The industry and the government have continuously suggested the need for stock splitting on Lotte Confectionery shares as well as other highly priced stocks. The government established a policy to expand dividend payments in hopes to revitalize home economies.
Stock split is an act executed to increase the total number of stocks by dividing the face value of the stocks by a certain rate. The market cap remains the same after stock split is executed, but as the number of stocks is increased, the price of one unit is lowered, leading to the activation in trading.
Prior to the cut, the stocks of Lotte Group affiliates were seldom traded due to the high prices. The average number of daily trades of Lotte Confectionery and Lotte Chilsung Beverage Co. this year only reached 2,000~3,000 units, showing a huge gap between the daily average of 13,988 units of the number of trades which occurred in the food and beverage business.
However, if the stock split is executed, theoretically the stock prices of Lotte Confectionery will be lowered from 2.4 million won to 240,000 won, and the total number of stocks will increase from 1,421,400 units to 12,214,000 units. As a result, individual investors who were not able to purchase the highly priced stocks could have easier access to the Lotte Confectionery stocks.
On an interview with the management information magazine Tycoon, an official of Korea Exchange showed anticipation on the positive effects of the stock split. “As Lotte Confectionery succeeded Amore Pacific in conducting a stock split, we anticipate that other enterprises in the food and beverage industry would also follow their lead. We hope that households could also benefit from the government’s policy to expand dividend payments, when the execution of stock split leads to the increase of individual investors.”
When there are hopes of more stock splitting of highly priced stocks-expecially the stocks of Lotte Group affiliates-, Lotte Chilsung seems skeptical about the idea.
According to Newssis, a Korean news media, officials of Lotte Group comment that unlike Lotte Confectionery, they have never discussed the stock splitting of Lotte Chilsung.