Business Scandal
TNPI, The Coffee Bean & Tea Leaf’s franchise company in China, recently sued Mirae Asset Chairman Park Hyun-ju. The case has been assigned to the Seoul Central District Prosecutor's Office.
Earlier this month, the Prosecutor's Office investigated the CEO of TNPI as the plaintiff. The company signed an exclusive contract with CBTL Franchising, the head office of The Coffee Bean & Tea Leaf, in May 2012 to run branches of the brand for 10 years in China. At that time, TNPI invested 34 billion won (US$33.1 million) and was in need of an additional 40 billion won (US$38.9 million) of future business. Mirae Asset stepped in to fund the venture.
According to TNPI, Mirae Asset said that it was willing to make an investment in TNPI in October 2012, and sent a due diligence team to China. The team visited TNPI and called for all data associated with the Coffee Bean business, sending the TNPI CEO a text message promising that every bit of investment-related data would remain confidential and the investment plan would be examined expeditiously. But, after receiving the investment information, Mirae Asset told TNPI that it would not make the investment.
Strange Behavior
Later, Mirae Asset received an investment proposal from CDIB, a U.S.-based fund that is also a former investor in Mirae Asset, for a Coffee Bean acquisition in January 2013. Together, they formed a consortium to purchase 75 percent of the shares at a cost of about 400 billion won (US$388 million). Mirae Asset secured 20 percent of the shares by spending approximately 75 billion won (US$72.9 million).
The legal issue is whether or not Mirae Asset obtained the confidential business information of TNPI under the pretext of investment, and then appropriated it for its own interest. “Mirae Asset acquired the head office in the U.S. by making use of our confidential information before trying to take economic profits by getting the business rights in China,” TNPI asserted.
Mirae Asset has refuted the argument, claiming that it is ludicrous, but the company's stance is losing credibility. In August last year, when the company was going for Coffee Bean, securities analysts asked the reason for the acquisition with the Korean and American coffee markets already in saturation. “Coffee Bean is doing its business around the world, and we are targeting the Southeast Asian markets and China, not limited to the Korean market,” a company representative answered.
Statistics support this point, too. According to a Chinese survey agency, franchise coffee shops in China have recorded a growth rate of as high as 15 percent each year. The number of cafes in China topped 34,000 last year, and the combined sales amounted to 10.2 trillion won (US$9.9 billion). The number of potential coffee consumers is estimated at between 200 and 250 million, and the Chinese coffee market is expected to be second only to the U.S. by 2020.
Controversy Arising for Input of Public Funds
“We have acquired less than 20 percent of the head office shares and have not participated in the management,” a Mirae representative said in response, continuing, “The investment in Coffee Bean was led by the PEF Division of Mirae Asset Global Investments, but TNPI sued not the division but the chairman in order to highlight the issue on purpose.”
The problem is that the business of TNPI has been halted due to the tug of war between the two parties. Besides, the public funds from the National Pension Service and the Korea Finance Corporation are included in the 75 billion won (US$72.9 million) spent on the acquisition. Under the circumstances, the equity value could be dropped, not to mention the lack of dividend income. “If what TNPI says is true, the case corresponds to tyranny by a big business,” an industry insider explained.
In the meantime, Mirae Asset is under wide investigation by the financial authorities for its allegations of illegal support for subsidiaries and unfair transactions in 2006 during its listing on the stock market.