Story of a Big Player from Gangnam

Stock split was one of the ways to increase the number of stocks available to trade on the stock market. It was deemed to be good news within the stock market, and the price of the stock increases accordingly. Therefore, when people from investing clubs visited Dyeon Korea in person and talked with the internal auditor, it was probably to procure important information that could affect the stock price before anyone else.

That was why Gun-Ho was talking about a stock split at Dyeon Korea’s executive meeting today knowing this fact.

The internal auditor said, “The number of our company stock had been 2 million before we went public. We then issued an additional 600,000 shares and offered them to the public to trade. That made our total number of shares 2.6 million, and then we split them in half to lower the price per share to 5,000 won from 10,000 won. So, now the total number of stocks is 5.2 million which is twice of 2.6 million.”

“That’s right. That’s what we did.”

The internal auditor continued, “However, given the number of stock that is reserved and not available to the public because they are owned by our major shareholders, and our employees through the employee stock ownership program, the number to stock that is actually available on the stock market to trade is 1.2 million. And, I think this doesn’t accurately reflect the real number of stock available on the stock market either because we have to consider the stock that is held by institutional investors as well. So, I believe that only 600,000 shares more or less are actually ready to trade on the market.”

“Hmm.”

At that moment, Gun-Ho thought about it.

‘It shouldn’t be even 600,000 shares, because I’m holding 200,000 shares in Seung-Hee sister’s stock account. That makes the actual number of shares that are practically available on the stock market only around 400,000.’

“Please continue,” Gun-Ho said.

“This low number makes our stock vulnerable to stock manipulators. They would be able to make our stock price hit the upper limit or bottom limit as they wish. We don’t want that to happen to our stock. Therefore, I agree with the idea of stock splitting 100%.”

Gun-Ho asked the other executive officers in the room for their opinions, “What do you all think about it?”

“I agree as well.” It was Director Kim.

While Director Kim clearly expressed his consent, Director Yoon and Manager Hee-Yeol Yoo were hesitating to give their opinion, probably because they didn’t quite understand what was going on with the stock. Mr. Vice President Adam Castler, on the other hand, seemed to have a lot to think about.

Gun-Ho asked him, “We are a joint venture company, and we need to discuss matters before making any major decisions with our partner—Lymondell Dyeon. So, Mr. Vice President Adam Castler, what do you think about stock splitting?”

“I also agree to a stock split as long as that doesn’t cause any changes in our capital. But, we need to inform this to the head office.”

“The price per share is now 5,000 won, and we have 5.2 million of them. If we make our unit share price 500 won by a stock split, the number of our stock will increase to 52 million. That will result in a substantial increase in the number of our stocks ready to trade on the stock market. But, I think 500 won is too low, and I think 1,000 won sounds more adequate. What do you all think?”

“That sounds reasonable, sir. So, our 5,000 won worth of share will become 1,000 won worth, and it will increase the number of shares available on the stock market by five times.”

Director Yoon asked the internal auditor, “Does that mean the total number of our company shares will increase from 5.2 million to 26 million?”

“That’s correct. I mentioned earlier that the actual number of our stocks ready to trade on the stock market was only 600,000 considering all of the shares currently held by our shareholders, employees, and institutional investors. If we split the stock this way, it will increase the number 5 times more, so it will be 3 million.”

Gun-Ho looked at the internal auditor while keeping a smile on his face, “Once we split our stock, the price will increase, and that will motivate the institutional investors that are possessing our stock, to sell theirs. If that happens, the number of stocks available to trade can be more than 3 million.”

“That’s true. Our stock price will increase due to the stock split, and some of the institutional investors will sell their shares. That will subsequently increase our company’s available stocks on the market.”

Manager Hee-Yeol Yoo asked with a puzzled look on his face, “With the stock split, the number of stocks that an investor is holding will increase by five times, and the unit share price will decrease by five times. I understand that. But, why would the stock price increase?”

Director Kim replied, “I will explain it to you. The current stock price is 26,000 won, and this price will decrease by five times which is 5,200 won after the stock split.”

“Yes, I understand that part.”

“The people, who consider the stock price of 26,000 won per share expensive, will think 5,200 won is more than affordable. Those people will still buy the share even if the price is 6,000 or 7,000 won, won’t they? Am I correct, Mr. Internal Auditor?”

“That’s exactly right. That’s why we expect the institutional investors, who bought our shares during the initial public offering at 26,000 won, to sell their shares once the price increases. Since institutional investors trade a large volume of stock, they will make a significant amount of money from this, with a small increase in the unit share price.”

Manager Hee-Yeol Yoo nodded his head as he finally understood.

Gun-Ho said after taking a sip of his tea, “Well, let me summarize what we just discussed at this meeting today. We will do the stock split on Dyeon Korea stock, so we can make 5,000 won worth unit share price to 1,000 won. The decision on a stock split is supposed to be made through a board meeting.” Gun-Ho then turned his gaze to the internal auditor and said, “Mr. Internal Auditor, please make a board meeting minute as if we had a board meeting today, and also draft a board resolution as such.”

“Yes, sir.”

Gun-Ho continued, “Also, we are supposed to make a public notice whenever we split stock. Please have our man, who is in charge of stock-related matters, inform this decision to our shareholders listed on our shareholder register. Mr. Internal Auditor, please notify our agency—the stock brokerage firm—about this decision as well.”

“Yes, sir.”

“We also need to file this change on our registration. Please proceed as such.”

“Yes, sir.”

The meeting was over, and Gun-Ho was having a cup of jujube tea in his office when Director Kim came in.

“Sir, you have heard that Egnopak’s president’s mother passed away, haven’t you?”

“Yes, I have.”

“I talked with GH Mobile’s President Song on the phone this morning. They already sent a flower wreath to the funeral with GH Mobile’s President Song’s name.”

“Dyeon Korea doesn’t have to worry about it. GH Mobile already sent a flower wreath under Dyeon Korea’s name by now.”

“I was told that your condolence money was also taken care of by them as well.”

“That’s right.”

“We prepared the condolence money that you would take to the funeral as well. Well, we feel sorry that they had to take care of things that we were supposed to do.”

“You will need to prepare your condolence money as well, Mr. Director Kim. Are you planning to go there today?”

“I’m going there tomorrow, sir.”

“I was told that his mother was 96 years old. I think she had a good and long life.”

“I believe so, sir.”