The public takeover bid for Hankook & Company by MBK Partners, in collaboration with Advisor Cho Hyun-sik of Hankook & Company, has fallen through.
On Dec. 26, Ventura, the special purpose company (SPC) of MBK Partners Special Situation Fund (SS) No. 2, announced, “The public takeover of Hankook & Company stock, conducted from the 5th to the 25th of this month, resulted in applications for 8,388,317 shares, falling short of the minimum targeted quantity of 19,315,214 shares, or 20.35 percent.”
MBK Partners initially aimed to acquire a stake of 20.35 to 27.32 percent, equivalent to 19,315,214 to 25,934,385 shares of Hankook & Company, through a public takeover at a price of 24,000 won (US$18.51) per share. However, the decision not to proceed with the purchase was made when the subscribed shares fell short of the minimum target.
The power struggle over control has concluded, but the conflict is expected to persist in the form of legal disputes. On Dec. 15, MBK requested an investigation by the Financial Supervisory Service (FSS), expressing suspicion about the “stock price adjustments” during the process where Cho Yang-rae, the honorary chairman of Hankook & Company and the father of current Chairman Cho Hyun-bum, secured a 4.41 percent stake. According to the investigation request submitted by MBK Partners to the FSS, it is alleged that Honorary Chairman Cho purchased shares at a price higher than the closing price to artificially fix Hankook & Company’s stock price above the public takeover price. The public takeover bid started on Dec. 6. The next day, Dec. 7, when the closing price dropped to 20,750 won, Honorary Chairman Cho immediately acquired 1.5 million shares of the company. Considering that the average trading volume of Hankook & Company’s stock was around 100,000 shares until November, the purchase by Honorary Chairman Cho was ten times the typical trading volume. After that purchase, the stock price of Hankook & Company resumed an upward trend.
Hankook & Company successfully defended its management rights, but it will officially request financial authorities to investigate the suspicion of early buy-in that occurred before MBK Partners’ public takeover announcement. The company aims to prevent similar confusion in the future. There have been discussions among investors suggesting that the trading volume and stock price of Hankook & Company surged unusually in the ten days before the MBK Partners’ public takeover announcement, potentially indicating some entities profiting from significant market discrepancies possibly amounting to around 10 billion won. Suspicions have been raised about whether this could be a result of early buy-in based on leaked information, with questions arising about whether someone from MBK Partners or Cho Hyun-sik, the advisor to Hankook & Company, exploited undisclosed information for personal gain. Chairman Cho Hyun-bum had already raised concerns about early buy-in speculation, pointing out that the company’s stock price had risen by 40 to 50 percent in the months leading up to the public takeover announcement.
The possibility of an adult guardianship ruling for Honorary Chairman Cho adds another layer of uncertainty to the situation. In June 2020, Honorary Chairman Cho sold his entire stake of 23.59 percent to Chairman Cho through an off-hours block deal. In response, his eldest daughter, Cho Hee-kyung, who is also the chairwoman of Hankook Tire Foundation, raised an objection, claiming that the transaction was not based on “voluntary intent.” The first court dismissed the claim, but it could exacerbate the confusion if the decision is overturned in the appellate court.
The fact that Chairman Cho is currently undergoing a trial adds considerable fuel to the conflict. In March, Chairman Cho was indicted and detained on charges of embezzlement and breach of trust amounting to 20 billion won as well as allegations of unfair support for affiliated companies. He was released on bail last month. Within the industry, resolving legal risks and enhancing shareholder value are seen as pressing challenges to fortify Chairman Cho’s defense of management rights.