Mom's Touch Spends 83 Billion Won of Company Funds to Buy Back Shares for Voluntary Delisting

[Asia Economy Reporter Jang Hyowon] Mom's Touch, a franchise company listed on KOSDAQ, plans to invest approximately 26.6 billion KRW to repurchase its own shares for voluntary delisting. Currently, it holds more than 17 million treasury shares, and combined with this amount, it will use a total of about 83 billion KRW for share repurchases.

However, controversy is expected as companies that have previously voluntarily delisted have been criticized for using treasury shares to benefit controlling shareholders.

According to the Financial Supervisory Service's electronic disclosure on the 21st, Mom's Touch and its largest shareholder Korea F&B Holdings announced a tender offer to purchase 16,087,172 shares (15.8%) of Mom's Touch at 6,200 KRW per share. Of the total shares subject to the tender offer, 11,798,185 shares (11.59%) will be purchased by the largest shareholder Korea F&B Holdings, and 4,288,987 shares (4.21%) will be purchased by Mom's Touch.

Currently, the largest shareholder Korea F&B Holdings holds 68,716,080 shares (67.49%), and Mom's Touch holds 17,014,279 treasury shares (16.71%). If the tender offer proceeds as planned, Korea F&B Holdings and Mom's Touch will hold 79.08% and 20.92%, respectively. The plan is to recover 100% of minority shareholders' shares and apply for delisting.

A representative from KL&Partners, the private equity fund operator of Korea F&B Holdings, stated, "As a listed company, information disclosure is relatively extensive, and whenever issues arise, it affects the sales of franchisees. To prevent such occurrences, we decided on voluntary delisting."

To acquire treasury shares, Mom's Touch plans to inject an additional 26.6 billion KRW of company-held cash. Mom's Touch began repurchasing treasury shares in August 2020 after the largest shareholder changed to Korea F&B Holdings in February of the same year. So far, Mom's Touch has spent about 56.7 billion KRW on treasury share acquisitions. Including this tender offer, the total expenditure will be approximately 83.3 billion KRW.

It is controversial for investment companies and others to repurchase treasury shares for voluntary delisting. This is because controlling shareholders may infringe on the interests of minority shareholders by using company funds, which are joint assets of shareholders, to acquire treasury shares.

In fact, in 2016, Taelim Paper, acquired by private equity firm IMM Private Equity, conducted a tender offer to repurchase treasury shares at 3,600 KRW per share and then voluntarily delisted. Afterwards, IMM recovered its investment through a high dividend of 4,111 KRW per share. Minority shareholders opposed this, arguing that the tender offer price was below the company's value, and in 2019, the court ruled that the fair price per share of Taelim Paper was 13,261 KRW.

In response, the Korea Exchange improved the system in April 2019 to exclude treasury shares when calculating the minimum shareholding ratio that controlling shareholders must meet for voluntary delisting of listed companies.

For example, if a company has 1,000 total issued shares, with 150 treasury shares and the largest shareholder holding 800 shares, previously, the largest shareholder's stake was recognized as 950 shares (95%) by combining their shares and treasury shares. However, under the improved system, treasury shares are excluded from both issued shares and held shares when calculating the shareholding ratio. The total shares are considered 850, and the largest shareholder's shares remain 800, resulting in a reduced shareholding ratio of 94.1%.

However, if the controlling shareholder and the company hold 100% of the shares, as in the case of Mom's Touch, this system becomes ineffective. Even if Mom's Touch's treasury shares are excluded from issued shares and the largest shareholder's holdings, Korea F&B Holdings becomes the 100% shareholder.

A KL&Partners representative said, "The 6,200 KRW per share price is higher than Mom's Touch's historical high, so there will be no harm to minority shareholders," adding, "After delisting, we plan to expand the business area and are not considering high dividends or sales."

Meanwhile, according to the Korea Exchange, KOSPI-listed companies must secure more than 95% ownership to voluntarily delist, but there is no specified figure for KOSDAQ-listed companies. Voluntary delisting can proceed if the Corporate Evaluation Committee recognizes that controlling shareholders have secured sufficient shareholding ratios to protect investors.