To defend the leadership of Cho Hyun-bum, the chairman of Hankook & Company, the holding company of Hankook Tire, his father, Cho Yang-rae, the honorary chairman, has stepped forward as a “white knight,” acquiring an additional 0.32 percent stake in the company. Hyosung Advanced Materials, led by Cho Hyun-sang, the vice chairman of Hyosung and the cousin of Chairman Cho, also purchased 0.15 percent of stake in Hankook & Company. This move, which involves family members, accelerates the defense of management rights in response to a public takeover bid for Hankook & Company by private equity firm (PEF) MBK Partners.
According to the electronic disclosure system of the Financial Supervisory Service (FSS) on Dec. 18, Honorary Chairman Cho increased his stake in Hankook & Company by acquiring 300,000 shares on Dec. 15 through on-market transactions. With the additional purchase, Honorary Chairman Cho’s ownership has risen from 2.72 percent to 3.04 percent. Hyosung Advanced Materials also secured 146,460 shares, or 0.15 percent, of Hankook & Company’s stock, becoming a special related party of Chairman Cho on the same day. Additionally, the company reached an agreement with Chairman Cho for the joint exercise of voting rights.
With the additional support from Honorary Chairman Cho and Hyosung Advanced Materials, Chairman Cho has gained a stronger position in the ownership competition. Currently, Chairman Cho holds a 42.03 percent stake, and the combined shares of the three parties result in total friendly holdings slightly exceeding 45 percent. If Chairman Cho acquires approximately 4 percent more shares, he could proactively avert any potential management control disputes.
Chairman Cho and Chairman Cho Hyun-joon of Hyosung Group are cousins. Honorary Chairman Cho is the younger brother of Honorary Chairman Cho Seok-rae of Hyosung Group, and, in 1985, he separated from Hyosung Group with Hankook Tire.
The industry assessment suggests that MBK Partners has minimal chances of success in a straightforward share confrontation. Given that Chairman Cho’s side holds a substantial majority of the shares, even if MBK Partners were to acquire the entire circulating supply of Hankook & Company’s shares, gaining control of the management would still pose a significant challenge. The combined ownership stakes of Cho Hyun-sik, the eldest son of Honorary Chairman Cho and adviser of Hankook & Company, with 18.93 percent; Cho Hee-kyung, the eldest daughter and head of Hankook Tire Foundation, with 0.81 percent; and his other sister Cho Hee-won, with 10.61 percent, amount to a total of 30.35 percent.
MBK Partners has formally requested the FSS to investigate whether the acquisition of shares by Honorary Chairman Cho constitutes market interference and a violation of capital market laws. With little chance of success in a straightforward share confrontation, the analysis suggests that this move is part of a legal battle for legitimacy.
MBK Partners claims that Honorary Chairman Cho artificially inflated the stock price through mass high-priced acquisitions to prevent the success of the public tender offer, driving the market price above the tender offer price of 20,000 won (US$15.35). If the market price surpasses the tender offer price, individuals are more inclined to sell on the market rather than participate in the public tender, increasing the likelihood of the offer’s failure. Additionally, MBK Partners suggests that the acquisition of shares by the listed company Hyosung Advanced Materials, based on the personal relationship with the owner, may violate the duty of fairness and integrity due to the possibility of stock price fluctuations.
On the other hand, a representative from Hankook & Company said, “Chairman Cho’s side acquired shares solely to protect management control.” Considering the strengthened collaboration and mutual technological development between Hankook & Company and Hyosung Advanced Materials, he argued that this move will contribute to business stabilization as well.
For now, MBK Partners plans to monitor the market’s judgment. The fact that the stock price is trading below the public tender offer price suggests the possibility that the tender offer might still be successful. There are still four business days left until the closing date, which falls on Dec. 25. However, it’s critical to note that Dec. 23 to 25 are holidays.