Yuhan Corp. and Kimberly-Clark, its 42-year-long business partner, are at odds over how to compose the board of directors in their jointly-invested firm, Yuhan-Kimberly.

Yuhan Corp., a Korean pharmaceutical company, has applied to Seoul Central District Court for a court injunction against the Hungarian arm of Kimberly Clark, the world’s largest paper company, regarding the appointment ratio of Yuhan and Kimberly directors, according to news reports.

Yuhan-Kimberly is a joint venture the two companies set up in 1970. Yuhan Corp. holds a 40 percent share and Kimberly-Clark 60 percent. At the time of establishment, the companies agreed that Kimberly-Clark should appoint four directors and Yuhan Corp. three.

The dispute began when Kimberly-Clark proposed changing the ratio of directors chosen by Yuhan from three to two and Kimberly-Clark from four to five for the extraordinary shareholders’ meeting of Yuhan-Kimberly slated for July 3.

Kimberly-Clark reportedly asserts that it should appoint more directors as it now holds 70 percent of Yuhan-Kimberly’s share while Yuhan Corp. has 30. Yuhan Corp. sold 10 percent of its stake to the Hungarian arm of the U.S. company during the Asian financial crisis in 1998 to secure liquidity.

Yuhan Corp., however, argues that the two companies agreed in 1970 that the director appointment ratio should be maintained four to three in order to keep up the cooperative spirit at the time of making the joint investment.

The two are known to have disputed director seniority rights several times, but this is the first time Yuhan Corp. decided to take legal action.

Industry insiders see that Yuhan Corp. is fighting over management control, especially as it has recently been having a hard time as the government cut medicine fees.

PR officials of Yuhan Corp., however, declined to speak on the management control issue.

The pharmaceutical firm has been one of the market leaders since its establishment in 1926, but is now in a risky position as its profit has been dropping for the past few years.

In the first quarter this year, its operating profit marked 8 billion won ($6.9 million), nearly half of the same period last year when it was 17 billion won, and a quarter of 2010 when it was 25 billion won.

The net profit of Yuhan-Kimberly, on the other hand, increased from 94 billion won in 2010 to 111 billion won last year.

By Park Min-young  (claire@heraldcorp.com)