Counterattack by MBK-aligned Eldest Son
With assets totaling 10.4 trillion won (US$7.91 billion), Hankook & Company, formerly known as the Hankook Tire Group, currently ranking 40th in the business sector, has reignited a power struggle among siblings. After a slump in 2021, the management dispute between the brothers is resurfacing, marking a counteroffensive by the eldest sibling against the younger one in this “Season 2” episode.
On Dec. 5, Ventura Co., Ltd. announced its intention to publicly acquire shares of Hankook & Company. Ventura is a special purpose company established by MBK Partners Special Situations (MBKP SS), a domestic private equity fund manager. On the same day, Ventura announced, “We have entered into a shareholder agreement related to public purchases on the 30th of last month with advisor Cho Hyun-sik of Hankook & Company and Cho Hee-won.” Through Ventura, MBK Partners aims to acquire management rights in collaboration with Advisor Cho, and the public purchase period extends until Dec. 24. Advisor Cho Hyun-sik is the eldest son of Honorary Chairman Cho Yang-rae of Hankook & Company, while Cho Hee-won is the second daughter of Chairman Cho.
Hankook & Company’s largest shareholder is Chairman Cho Hyun-bum, holding a 42.03 percent stake. Advisor Cho Hyun-sik and Cho Hee-won, who have joined hands with MBK, each possess 18.93 percent and 10.61 percent stakes, respectively. The combined ownership of the two individuals is 29.54 percent, and in the event of MBK’s successful public acquisition, they could secure management rights with a stake ranging from a minimum of 50 percent+1 share to a maximum of 56.86 percent. The total value of this public acquisition is up to 518.7 billion won (US$394.45 million).
MBK has disclosed its intention to publicly acquire shares of Hankook & Company, ranging from a minimum of 19,315,214 shares, or 20.35 percent, to a maximum of 25,934,385 shares, or 27.32 percent. When combined with the holdings of Advisor Cho Hyun-sik, this could potentially elevate them to the position of the largest shareholder in Hankook & Company. MBK and Advisor Cho have mutually agreed not to jointly exercise their voting rights as the largest shareholders without the consent of the other party. MBKP SS stated, “In the event of a successful public acquisition and securing voting rights exceeding 50 percent, we will promptly introduce a professional management system to enhance the corporate value of Hankook & Company.”
Within the business community, the recent public acquisition is seen as the beginning of a second sibling conflict within Hankook & Company. However, attention is drawn to the significant disparity in ownership between the brothers as they enter this second dispute. Particularly noteworthy is Chairman Cho’s amicable holdings and the indication that, if necessary, he could counter with a public acquisition. This suggests that the success of the public acquisition may not be easily attainable, given the fact that Chairman Cho holds a favorable position with over 40 percent ownership. Immediate advantage lies with Chairman Cho Hyun-bum, who, with an additional 8 percent, could secure control of over 50 percent of the company, preserving his management rights. Advisor Cho and Ventura plan to persuade small shareholders and foreign investors, who collectively hold 10.37 percent of the shares.
Even if both sides engage in a competition for ownership stakes, Chairman Cho is reported to have sufficient financial resources at his disposal. According to the Financial Supervisory Service’s electronic disclosure system, approximately 25 percent of Chairman Cho’s 42.03 percent stake in Hankook & Company is set as collateral for stock-secured loans. This implies that, in the event of a rise in stock prices, additional funds can be raised through further stock-secured loans. A source in the investment banking industry commented, “MBK may increase the public acquisition price. However, Chairman Cho seems to have the upper hand at this point,” adding, “The duration of the dispute could depend on MBK’s strategy.”
In fact, there are discussions suggesting that MBK could respond by raising the public acquisition price. A high-ranking official in the financial industry said, “If the initial public acquisition price is set high, the stock price is likely to rise to that level immediately. Considering that the closing price the previous day was 16,820 won, MBK might take a step-by-step approach, and there could be some significant developments.”
Regarding the public acquisition price set at 20,000 won, an industry insider said, “It’s asking shareholders who bought shares for more than 20,000 won in the past to accept a negative return through the public acquisition. There’s skepticism about whether there is a precedent for such a request being successful in past hostile M&A situations.” Some in the industry speculate that MBK may be more interested in capitalizing on price differentials resulting from the management dispute rather than pursuing a straightforward takeover of management rights.
The direction of Hankook & Company’s stock price is a crucial factor that will determine the outcome. However, MBK Partners’ public acquisition of Hankook & Company’s shares has hit a snag right from the start. Despite the joint efforts of Advisor Cho and MBK in initiating a hostile merger and acquisition (M&A) through public acquisition targeting Hankook & Company, the holding firm of the Hankook Tire Group, the closing price skyrocketed to 21,850 won, well surpassing the public acquisition price of 20,000 won and hitting the daily limit. This situation increases the likelihood that individual shareholders may resist responding to Advisor Cho’s public acquisition of shares.
According to the Capital Market Act, it is possible to make favorable changes for the buyer during the public acquisition period. Industry experts view this situation as having a high likelihood of turning into a “money game.” A high-ranking industry official familiar with M&A stated, “It may not be easily understandable, but didn’t MBK anticipate the significant difference in ownership between Chairman Cho and Advisor Cho, and the potential for a sharp increase in stock prices? The key lies in how much both parties are willing to spend.”
From MBK’s perspective, the key issue lies in securing the minimum expected number of shares for the public acquisition, which is 19,315,214, or approximately 20.35 percent. MBK stated, “If we cannot reach the minimum target, we do not plan to purchase a single share. It means a conditional public acquisition.” This allows for flexibility and signifies that MBK has left the door open for alternative options if the minimum target is not met.
In the market, there is a consensus that MBK has little to lose in this management dispute. If MBK succeeds in the public acquisition, it has secured a drag-along provision that allows it to bundle and sell the stakes of Advisor Cho and Cho Hee-won when the original buyer emerges. With the success of the public acquisition alone, MBK could aim for substantial investment returns by selling a global top 10 tire company, Hankook Tire & Technology, as part of the deal.
The conditions also favor MBK. According to the shareholder agreement, Advisor Cho and MBK have agreed not to jointly exercise voting rights with Chairman Cho, the largest shareholder of Hankook & Company, without mutual consent. Advisor Cho’s side has also committed to not dispose of the held shares to a third party without MBK’s consent. Particularly noteworthy is that if MBK secures over 50 percent of Hankook & Company’s shares, it has the authority to nominate more than half of the board members, including the CEO. The CEO appointment is subject to negotiation. However, MBK holds the right to make nominations if an agreement cannot be reached.
The conflict between the two brothers dates back to June 2020. In that year, Chairman Cho acquired all of the 23.59 percent stake held by Honorary Chairman Cho through off-hours bulk trading, increasing his own stake to 42.90 percent and becoming the largest shareholder of Hankook & Company. Prior to this event, Advisor Cho held a stake of 19.32 percent Chairman Cho’s stake was 19.31 percent, making their ownership relatively similar. The management dispute seemed to have been resolved temporarily when Chairman Cho assumed the role of chairman in December 2021, while Vice Chairman Cho Hyun-sik stepped down from his advisory role.
However, the situation took a turn when Chairman Cho was indicted in March on charges of embezzlement and breach of trust in the 20 billion won range. He was subsequently released on bail on Nov. 28. An industry insider commented, “It appears that Advisor Cho entered into the dispute, taking issue with his brother’s legal risks.”