[Reporter’s Notebook] Namyang Dairy Owner Overturns Even the Sale Contract

Namyang Dairy Stock Price Declines for Two Consecutive Days
Market Trust Lost Greater Than Penalty for Breach of Share Sale Contract

Hong Won-sik, chairman of Namyang Dairy Products, is holding a public apology press conference related to the 'Bulgaris incident' at Namyang Dairy Products headquarters in Gangnam-gu, Seoul on the 4th. Last month, Namyang Dairy Products announced at the 'Symposium on Developing Antiviral Foods in the COVID-19 Era' that the Bulgaris product was confirmed to reduce COVID-19 by 77.8%. However, the research results were revealed to have exaggerated the findings from animal 'cell-level' experiments, causing controversy. In response, Hong Won-sik, chairman of Namyang Dairy Products, expressed his intention to resign during the public apology press conference on the same day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Ji Yeon-jin] The price nearly doubled compared to the time of the contract. On the day of the final payment, the seller suddenly canceled the contract. This is not a scene from the time of the apartment price surge. It happened during the sale process of a listed company with a transfer payment exceeding 300 billion won.

Hong Won-sik, former chairman of Namyang Dairy Products, suddenly postponed the shareholders' meeting scheduled for the final payment day. Namyang Dairy Products and Hahn & Company planned to hold an extraordinary shareholders' meeting on the morning of the 30th of last month to propose the appointment of Yoon Yeo-eul, chairman of Hahn & Company, and others as new inside directors. If the appointment passed, in the afternoon, major shareholders including former chairman Hong and Hahn & Company personnel were to gather in one place to exchange shares and payment. This is the usual method of closing a merger and acquisition (M&A) deal.

However, former chairman Hong suddenly postponed the related agenda at the Namyang Dairy Products extraordinary shareholders' meeting to September 14. The reason given was "time is needed to prepare for the closing of the share purchase agreement between the parties." Afterwards, former chairman Hong did not even appear at the location for the deal closing. Hahn & Company announced legal action, calling it a "clear breach of the share purchase agreement."

According to the Financial Supervisory Service, the payment deadline for this contract was specified as "the day 13 business days after the completion of precedent conditions or a day agreed upon by the parties." By agreement of both companies, the closing date was the 30th of last month, and even without agreement, the closing date could not exceed August 31 as stipulated in the contract. Therefore, postponing the extraordinary shareholders' meeting until September 14 is a clear breach of contract. There is also speculation that former chairman Hong will pay a penalty (about 31 billion won, approximately 10% of the transaction amount) to Hahn & Company and sell to a third party.

Namyang Dairy Products faced public backlash after falsely announcing in April this year that its flagship beverage, Bulgari, "proved effective in preventing COVID-19." Eventually, former chairman Hong decided to sell his shares to Hahn & Company and stepped down from the chairman position. Previously, the company repeatedly faced controversies such as distributor bullying and false advertising. And at the moment of selling the company, it shocked the market once again. Following former chairman Hong's sudden action, Namyang Dairy Products' stock price immediately plummeted. Former chairman Hong lost market trust far greater than the penalty exceeding 30 billion won.