Former Major Shareholder of Namyang Demands Courtesy Positions Including Advisory Role
Current Major Shareholder Hahn&Co Launches Follow-up Legal Actions
Industry: "Acceptance Difficult Due to Owner Risk Issues"
Hong Won-sik, chairman of Namyang Dairy Products (age 73), is holding onto his position as chairman while demanding to be appointed as an advisor, but the industry expects his demands to be difficult to fulfill. This is because the private equity firm HN Company (HN Co.) has already secured the largest shareholder status of Namyang Dairy Products following a final Supreme Court ruling, and the company needs to shake off the owner risk originating from the Hong family to improve its corporate image.
According to the investment banking (IB) industry and legal circles on the 5th, on the 21st of last month, HN Co. filed a provisional injunction demanding that "at the regular shareholders' meeting of Namyang Dairy Products, an agenda be submitted to appoint Yoon Yeo-eul, chairman of HN Co., as a non-executive director of Namyang Dairy Products." The proposal also included nominating Lee Dong-chun, vice president of HN Co., as an inside director, and Bae Min-gyu, vice president of HN Co., as a non-executive director candidate. Earlier last month, HN Co., which applied for permission to convene an extraordinary shareholders' meeting, has intensified its offensive against Chairman Hong.
This is because Chairman Hong has not stepped down from his position and continues to commute to the Gangnam office building. It is reported that Chairman Hong is demanding an advisory position, an office, and a vehicle from HN Co. On January 31, HN Co. acquired shares from the Hong family and became the largest shareholder with 53.08% of Namyang Dairy Products' shares. However, Namyang Dairy Products closed the shareholder registry for the '2024 March regular shareholders' meeting' in December last year, making it impossible for HN Co. to exercise voting rights at the upcoming shareholders' meeting next month.
The court hearing to decide whether to convene an extraordinary shareholders' meeting will be held on the 27th. If the convening is approved, HN Co. can replace the board of directors at the extraordinary shareholders' meeting to be held within this month. If not approved, the board replacement must be carried out through agenda submission at the regular shareholders' meeting. Namyang Dairy Products usually holds its regular shareholders' meeting in the fourth week of March every year. The hearing for the injunction on agenda submission will be held on the 8th.
The debate over the appointment of advisory positions and family privileges began even before the stock transfer lawsuit. Regarding the stock purchase agreement negotiations in 2021, Chairman Hong claimed, "Family privileges were a major precondition of the deal," but HN Co. countered, "Chairman Hong was only focused on raising the purchase price per share." In fact, when the contract news was announced, Namyang Dairy Products' stock price, which was in the 300,000 won range per share, soared to 700,000 to 800,000 won per share, and afterward, Chairman Hong did not transfer the shares, claiming that the contract conditions were not met. In the first trial of the lawsuit filed by HN Co. demanding "transfer the shares according to the contract," Chairman Hong said, "I felt a great regret that I could not pass on the family business. As a husband and parent, protecting the family's privileges was the fundamental premise of the deal." Han Sang-won, president of HN Co., responded, "(Receiving) 310 billion won from the share sale is taking care of the family."
The industry believes that Chairman Hong will not be able to maintain his claims regarding privileges. Even during the stock transfer lawsuit, which HN Co. won, the court concluded that discussions about advisory positions did not lead to a binding commitment in the stock transfer contract. For HN Co., severing ties with the Hong family is urgent to resolve the owner risk. Namyang Dairy Products has faced public criticism due to controversies such as the agency bullying scandal and the Bulgari controversy during the COVID-19 pandemic. Due to large-scale consumer boycotts and other impacts, Namyang Dairy Products has been running deficits for several years.
However, if Chairman Hong is reappointed through the shareholders' meeting, there is a possibility that he will retain management rights until the next shareholders' meeting. In this case, HN Co.'s timeline for normalizing Namyang Dairy Products' management will be further delayed. An IB industry official commented on Chairman Hong's actions, saying, "In fact, the replacement of management will only be delayed by a month or two and cannot change the overall trend," and "From the shareholders' perspective, it would be better for the company to normalize quickly, so this is a frustrating situation." HN Co. has separately filed a damage compensation lawsuit worth 50 billion won against the Hong family, stating that it will additionally claim damages caused by the delayed stock transfer.
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