Shinhan Financial Group’s plans to merge Orange Life Insurance with its wholly owned life insurance unit seemed to have been working out smoothly. However, trouble persists as minority shareholders continue to demand an increase in their dividend payouts.

Small shareholders of Orange began making the demand after teaming up with civic activist group the Korea Stockholders Alliance in November, but Shinhan refuses, saying it would constitute a breach of trust with its other shareholders.

“The alliance will consider taking further actions if Shinhan looks down upon Orange Life minority shareholders,” Korea Stockholders Alliance founder Jung Eui-jung told The Korea Herald on Friday, insisting the financial group pay 2,000 won ($1.67) per share as year-end dividends.

Shinhan Financial, which had offered Orange Life shareholders 1,250 won per share, has shown no signs of giving in.

“There will be no increase in dividend payouts,” a Shinhan Financial spokesperson told The Korea Herald.

“Paying more dividends to small shareholders would mean breaching the trust of the majority stakeholders. The share exchange is already complete and there is no going back,” the official added.

The share swap took place Tuesday. Orange Life is now a legally wholly owned subsidiary of Shinhan Financial, as a result of the financial conglomerate’s acquisition of a 40.85 percent stake in Orange Life -- valued at 958.3 billion won -- from small shareholders.

Earlier this month, a majority of Orange Life shareholders approved Shinhan Financial’s takeover. Under the contract, the share swap ratio between Orange Life and Shinhan stood at about 1 to 0.66. One share of Shinhan was valued at 43,336 won, with a share of Orange Life coming in at 28,608 won.

Trading of Orange Life shares has been suspended since Jan. 22.

The conflict started with Orange Life small shareholders’ dissatisfaction with what they viewed as unfair treatment from Shinhan Financial.

In February 2019, Shinhan acquired a controlling 59.15 percent stake in Orange Life for 2.3 trillion won from private equity house MBK Partners. Each share was purchased for 47,400 won at the time -- market price plus a premium of 36.6 percent. The price was higher than the 28,235 won per share offered to minority shareholders who opted to cash out shares in November instead of receiving Shinhan shares.

The valuation gap persisted through the share swap in January. However, small shareholders with only 4 percent voting rights were forced to accept the share swap plan, even though it undervalued their shares against those owned by MBK Partners.

Small shareholders subsequently called for increased dividends, which would keep Orange Life’s dividend yield for 2019 in sync with that of 2018, 9 percent. Orange Life’s dividend for 2019 amounts to the year-end dividend plus 800 won interim dividend per share, meaning the Korea Stockholders Alliance and small shareholders demand a total of 2,800 won for 2019.

The stock acquisition plan, first unveiled by Shinhan Financial Vice President Ryu Seung-heon in October last year, is designed to merge Orange Life, precursor of multinational ING Life Insurance’s Korean unit, with another wholly owned subsidiary in Shinhan Life Insurance by as early as the end of 2020. The merger is expected to give birth to a new entity with combined total assets of over 60 trillion won, making it the fourth-largest in the domestic market.

Wholly owning Orange Life was also part of Ryu’s plan, as revealed during the third quarter earnings conference call last year.

Orange Life is set for delisting from the Korea Exchange’s main bourse, Kospi, by Feb. 14. The stock swap for minority shareholders of Orange Life is to take place Feb. 7.

The banking group will go through procedures such as the internal system integration of Shinhan Life and Orange Life ahead of the planned merger.

By Son Ji-hyoung (consnow@heraldcorp.com)