Selling Kyowa Hakko Bio to Kirin to bet on drugs alone (2019)

A high-earning business — let go for whose sake?

The heart of this decision is that a divestiture which shrank the company’s own earning base was carried out as a transaction with the controlling shareholder — its own parent. Kyowa Hakko Kirin set up a third-party committee and confirmed the fairness of the price with a fairness opinion, so the procedures for protecting minority shareholders were, in form, fully observed. Even so, the transaction itself — a parent buying, for about $1.2B (¥128bn), a subsidiary that throws off $74.3M (¥8bn) of core operating profit a year — cannot escape the character, seen from the minority shareholders’ side, of an earner moving over to the parent. Whether the procedure was fair, and whether the substance of the deal favoured minority shareholders, are two different questions.

The strategic logic of concentrating on drugs was borne out by the growth in sales and profit that followed. Yet the core of the Kyowa Hakko Bio business that moved to the parent was, within five years, sold on to an outside buyer at a loss of about $191.4M (¥29bn). That the parent could not make good use of a business it had taken on at a high price invites a second look at whose interest the pricing served. When, under a parent-subsidiary listing, a subsidiary’s business mix is rearranged for the parent’s convenience, how far can procedures that certify a fair price, on their own, protect the interests of minority shareholders? The sale of Kyowa Hakko Bio left that question behind.