South Korea’s bakery giant SPC Group with flagship franchise label Paris Baguette was slapped with a fine of 64.7 billion won ($54.3 million) for unfair in-house business deals.
According to the Fair Trade Commission (FTC) on Wednesday, the group affiliates awarded unnecessary contracts to SPC Samlip to unduly benefit the factory bread and confectionary making unit over the past eight years. The agency said it decided to fine a combined 64.7 billion won – 25.2 billion won on Paris Croissant, 7.6 billion won on SPL, 1.1 billion won on BR Korea, 1.5 billion won on Shany and 29.1 billion won on SPC Samlip.
The group chairman Hur Young-in, former CEO Cho Sang-ho, Paris Croissant CEO Hwang Jae-bok as well as three affiliates – Paris Croissant, SPL and BR Korea – have been reported to prosecutors, the FTC said.
The antitrust agency said the group’s unfair inter-affiliate deals from April 2011 to April 2019 led to a 41.4 billion won profit for SPC Samlip, which is 32.89 percent owned by the group’s family owners – vice president and Hur’s eldest son Hur Jin-soo holding 16.31 percent stake and second son Hur Hee-soo 11.94 percent.
The group was found to have forced Paris Croissant, SPL and BR Korea to buy raw materials including flour and eggs through Samlip from September 2013 to July 2018. The unfair profit amounted to 38.1 billion won, according to the FTC probe.
SPC argued that Samlip played a role as an intermediary and what the affiliates paid was a “passage tax”, but the FTC said there was no evidence that proved the Samlip’s role was necessary for the transactions.
The watchdog also added that Samlip took a huge profit from the shady deals and consumer prices were raised due to the practice. Sales of Samlip shot up from 269.3 billion won in 2010 to 1.01 trillion won in 2017.
Samlip was also charged with buying a distribution network of its sibling bakery unit Shany at 2.8 billion won, much lower than the market price of 4 billion won, and using Shany’s trademark for free for eight years.
In addition, the FTC found that Paris Croissant and Shany sold their stake in Mildawon, a flour supplier, at 255 won per share, lower than its original value of 404 won. The agency argued the sake sale was aimed at boosting the group’s only listed company Samlip’s stock price for the purpose of converting the stake owned by the family owners into Paris Croissant shares. That would end up strengthening the control of the sons as Paris Croissant is fully owned by the family members, the FTC said.
SPC strongly denied the argument because Samlip is a company in which the family owners hold a relatively small amount of stake and has many minority shareholders.
By Kim Hyo-hye, Baek Sang-kyung and Choi Mira
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