Celltrion's Share Cancellation Undercut by New Issuance Plan [Treasury Share Report]

[Korea Financial Times, Yang Hyunwoo] Celltrion is demonstrating a shareholder-friendly stance by cancelling 9.11 million treasury shares, equivalent to 74% of its total treasury shares holdings. However, despite these shareholder return efforts, some voices of disappointment have emerged.

The concern stems from the company's decision to cancel 3 million shares originally held for employee stock option compensation — only to then issue new shares for the same purpose. If 3 million new shares are issued, the shareholder value enhancement intended through the treasury shares cancellation could be significantly diluted.

Treasury Shares Cancellations Rise — But New Share Issuance Follows

Celltrion announced on the 24th that all major agenda items were approved at its annual general meeting (AGM). The key items included: ▲ approval of financial statements ▲ partial amendment of the articles of incorporation ▲ appointment of directors ▲ appointment of audit committee members ▲ approval of director compensation limits ▲ approval of treasury shares holding and disposal plans, and cancellation of treasury shares.
Notably, Celltrion expanded the scale of its treasury shares cancellation through this AGM. The total number of shares to be cancelled was increased from the previously announced 6.11 million shares to 9.11 million shares — including 3 million shares held for stock option compensation purposes — valued at approximately KRW 1.7154 trillion. The cancellation is set to proceed following a board resolution immediately after the AGM, with the scheduled date of April 1. Of the total shares held by the company, which account for 5% of all outstanding shares, 4% (9.11 million shares) will be immediately cancelled, while the remaining 1%, or 3.23 million shares, will be retained for future growth initiatives.

In addition, Celltrion has decided to manage employee stock option compensation through new share issuances going forward. The core premise of shareholder returns, however, is to enhance shareholder value by reducing the total share count through cancellation. Even if 3 million treasury shares are cancelled in the near term, any subsequent new share issuance would restore the share count to its previous level — effectively reversing the shareholder value gains.

One industry official noted, "Looking at the overall picture, cancelling shares only to issue new ones essentially brings things back to square one," adding, "It appears that Celltrion intended to place immediate significance on the additional cancellation of 3 million shares to boost near-term shareholder value, even if new shares are to be issued later."

Earlier, in its notice of AGM convocation in February, Celltrion had explicitly stated under the purpose of treasury shares holding or disposal: "Stock options will continue to be operated in the form of treasury shares delivery in order to prevent value dilution caused by new share issuance." However, seemingly willing to accept equity dilution, the company reversed this position within roughly a month, amending it to a post-cancellation new share issuance approach.

In response, a Celltrion spokesperson stated, "The treasury shares cancellation initiative is being carried out in accordance with the company's management policy of placing the highest priority on protecting shareholder rights amid an unstable market environment," adding that "new share issuances are planned to proceed sequentially over an extended period."

3.23 Million Treasury Shares to Be Used for Facility Expansion and New Drug Development

Celltrion also decided at the AGM to retain 26% of its treasury shares holdings — 3.23 million shares — rather than cancelling them, to be utilized for future liquidity and investment funding.

According to the disclosure, the amount to be raised is KRW 677.6 billion, with the liquidity event expected within this year. The proceeds are earmarked for production facility expansion and new drug development investment. However, concerns have been raised that if these shares are released into the market, the increase in circulating shares could dilute the equity value of existing shareholders.

Regarding the increase in circulating shares, Celltrion explained, "The shares will not be released into the market in the short term; rather, they will be held for a considerable period before being liquidated." The company also noted that, in order to strengthen transparency in fund management, the liquidated proceeds will be managed in a separate account and used solely for the approved purposes.

Simultaneous Expansion in Songdo and the U.S. — Production Capacity to Reach 571,000 Liters

At the AGM, Celltrion appointed Shin Min-cheol, President and Head of Administrative Division, as an inside director, following the resignation of incumbent inside director and Vice Chairman (CEO) Kim Hyung-ki for personal reasons. Celltrion CEO Ki Woo-sung was reappointed as an inside director.

Celltrion Chairman Seo Jung-Jin stated, "I will personally take charge of the sales business area left vacant by Vice Chairman Kim Hyung-ki's departure for the time being." Chairman Seo presided over the AGM as chairperson — his first time doing so in 11 years since 2015.

Celltrion also announced plans to invest KRW 1.2265 trillion within its Incheon Songdo campus to simultaneously construct Plants 4 and 5, totaling 180,000 liters in capacity, in order to meet biopharmaceutical demand and strengthen global production competitiveness. The newly built Plants 4 and 5 will incorporate cutting-edge automation systems and smart factory technologies on a large scale.

Furthermore, to bolster competitiveness in the U.S. market, Celltrion finalized the expanded scale of its production facility in Branchburg, New Jersey. The originally planned expansion of 66,000 liters has been increased to 75,000 liters, which means the facility's total drug substance (DS) production capacity is expected to grow from the current 66,000 liters to 140,000 liters.

Once both domestic and overseas expansions are completed, Celltrion's total DS production capacity will expand significantly — from 316,000 liters to 571,000 liters.

Beyond DS production, Celltrion is also pursuing comprehensive investment to enhance its global competitiveness in the finished drug product (DP) manufacturing process.

The new DP production facility currently under construction at the Songdo campus is progressing at the fastest pace. With construction already more than 70% complete and set to be finished within this year, full-scale commercial production is expected to commence next year.

Yang Hyunwoo (yhw@fntimes.com)