Hankook Tire Faces Another Sibling Rivalry... Cho Hyun-sik Pushes for Holding Company Management Rights Acquisition with MBK (Comprehensive)

Eldest Son Advisor Cho Hyun-sik Joins Hands with Second Daughter Cho Hee-won for Tender Offer
If Over 50% Voting Rights Secured, MBK Side to Control Korea & Company Board
Chairman Cho Hyun-beom Holds 42.03% Stake, Counter Tender Offer Also Possible

MBK Partners is teaming up with Cho Hyun-sik, advisor and eldest son of the honorary chairman of Korea & Company Group (formerly Korea Tire Group), and his younger sister Cho Hee-won to launch a public tender offer for the listed tradable shares of Korea & Company, the group's holding company. The plan is to improve the corporate governance structure centered on the existing major shareholder and second son, Chairman Cho Hyun-beom, who is embroiled in legal risks, and to shift to a professional management system. If the tender offer succeeds, MBK will take the lead and have the authority to appoint a majority of the directors and the CEO on the Korea & Company board.

MBK Pursues M&A of Korea & Company

On the 5th, Venture, a special purpose company (SPC) related to MBK Partners' public tender offer for Korea & Company, announced that it will conduct a public tender offer for Korea & Company shares on the Korea Exchange for the purpose of improving corporate governance through mergers and acquisitions (M&A).

The tender offer price is 20,000 KRW per share. This price applies a premium of 41% and 55% over the weighted arithmetic average stock prices for the previous one month (14,187 KRW) and three months (12,887 KRW), respectively. It is also 19% higher than the closing price of 16,820 KRW on the last trading day before the tender offer announcement, December 4. As of 10:10 a.m., Korea & Company shares are trading at 21,850 KRW, exceeding the tender offer price.

The shares subject to the tender offer amount to approximately 27.32% (25,934,385 shares) of Korea & Company's total issued shares (94,935,240 shares). The minimum target quantity for the tender offer is about 20.35% (19,315,214 shares) of the total issued shares, and the maximum quantity is about 27.32% (25,934,385 shares).

If the number of shares tendered is less than the minimum purchase quantity, the tender offeror will not purchase any of the tendered shares. Conversely, if the number of shares tendered exceeds the maximum purchase quantity, the purchase will be made on a pro-rata basis within the range of the target shares. The tender offer payment will be made in cash.

According to the tender offer report, MBK, the tender offeror, signed a shareholders' agreement on November 30, prior to the tender offer announcement, with major shareholders Cho Hyun-sik, advisor, and Cho Hee-won regarding the exercise of rights related to the tender offer and shareholding.

Under the shareholders' agreement, the parties agree that under no circumstances shall they directly or indirectly jointly exercise voting rights (including the authority to instruct the exercise of voting rights) with the largest shareholder and their special related parties (excluding Cho Hyun-sik and Cho Hee-won) without mutual consent. Cho Hyun-sik and Cho Hee-won cannot dispose of their shares to third parties without MBK's consent.

Furthermore, if shares tendered exceed the minimum purchase quantity and the voting rights over shares exceeding 50%, including those held by major shareholders, are secured, MBK will have the authority to appoint more than half of the total directors of Korea & Company. Cho Hyun-sik and Cho Hee-won will appoint a number of directors equal to the total number of directors minus the number appointed by the tender offeror, minus one.

The CEO will be appointed by mutual agreement among the contracting parties, but if no agreement is reached, MBK will appoint the CEO. MBK will also appoint the majority of the members of the Outside Director Candidate Recommendation Committee and the Personnel Committee (to be newly established) within Korea & Company's board.

To secure all liabilities to the tender offeror, including damages for breach of the shareholders' agreement, Cho Hyun-sik and Cho Hee-won have also established a pledge on the Korea & Company shares they own as collateral to the tender offeror.

Cho Hyun-sik owns 17,974,870 common shares of Korea & Company, approximately 18.93% of the total issued shares, while Cho Hee-won holds 10,068,989 shares, about 10.61% of the total issued shares.

If the tender offeror secures at least 19,315,214 shares, about 20.35% of the total issued shares, it will hold voting rights over more than 50% of Korea & Company's issued shares excluding treasury stock. The tender offer period is 20 days starting from the 5th. Since the 20th day falls on Sunday, December 24, subscriptions can be made until December 22. The settlement date is December 27. An MBK official explained, "If the tender offer succeeds and voting rights over more than 50% of shares are secured, we will restore corporate governance and introduce a professional management system to enhance Korea & Company's corporate value."

Korea & Company Group Marred by Management Dispute and Legal Risks

Korea & Company Group, the largest domestic and sixth-largest global tire manufacturer, has been embroiled in a management dispute between eldest son Cho Hyun-sik, advisor, and second son Cho Hyun-beom, chairman. The balance of power shifted when their father, honorary chairman Cho Yang-rae, sold all his shares (23.59%) to Chairman Cho Hyun-beom through an off-market block deal in 2020. However, legal risks have hampered Chairman Cho. He was sentenced in the appellate court to three years in prison and four years probation for charges including receiving kickbacks from certain subcontractors. He later admitted guilt and abandoned his appeal.

After the guilty verdict, the National Pension Service sided with Cho Hyun-sik's faction during the management dispute with Chairman Cho Hyun-beom. In March 2021, the National Pension Service opposed the appointment of Chairman Cho as an inside director at the shareholders' meeting. It also supported the appointment of Professor Lee Han-sang, recommended by Cho Hyun-sik, as an audit committee member. Currently, the National Pension Service holds a 3.8% stake in Korea & Company.

The fact that MBK, a fund manager operating the National Pension Fund, could boldly proceed with this tender offer is also a factor. MBK plans to acquire between 20.35% and 27.32% of shares held by minority shareholders, foreigners, and institutions. The total investment is expected to reach between 386.3 billion and 518.6 billion KRW. MBK will use funds from its second special situations fund, worth 2.3 trillion KRW, for this tender offer.

There is also a possibility that MBK's tender offer may fail, as Chairman Cho holds 42.03% of shares. Chairman Cho's faction may counter with a higher-priced tender offer. If Chairman Cho acquires just about 8% more shares, his stake will exceed 50%. However, since Chairman Cho was released on bail and legal risks remain, it is expected that he will find it difficult to actively respond to this tender offer.