Namyang Dairy Ends 60-Year Owner System... Muddy Legal Battle Continues

Former Chairman Hong Won-sik, CEO of Han&Co Accused of Fraud
"Deceived by Promise of 'Guaranteed Position' Even After Transferring Shares"
Lawsuit Demanding 44.4 Billion Won Severance Pay
Company and Largest Shareholder Also File Counterclaims Worth Hundreds of Billions

Namyang Dairy Products has parted ways with its 60-year owner management system and welcomed a private equity fund as its new owner nine months ago, but an unstable mudslinging battle continues. This is due to the entangled lawsuits involving the company, former chairman Hong Won-sik, and the largest shareholder, private equity firm Hahn & Company (Hahn & Co).

Former Chairman Hong Won-sik of Namyang Dairy Products./Photo by Hyunmin Kim kimhyun81@

According to industry sources on the 28th, former chairman Hong Won-sik’s side filed a complaint with the Seoul Central District Prosecutors' Office against Hahn Sang-won, CEO of Hahn & Co, the largest shareholder of Namyang Dairy Products, and Ham Chun-seung, CEO of PH&Company, the intermediary for the stock purchase agreement (SPA), on charges of fraud under the Act on the Aggravated Punishment of Specific Economic Crimes (Special Act).

Hong’s legal representatives stated, "The accused deceived former chairman Hong by promising to guarantee a certain position that would contribute to the normalization of management even after transferring Namyang Dairy Products’ shares to them," adding, "(Former chairman Hong) considered this the most important term of the stock purchase agreement and entered into the contract with the accused despite incurring losses."

They further explained, "The accused did not fulfill this promise at all after the contract was signed, and it has been confirmed that they never intended to fulfill it from the beginning, which led to the filing of the complaint," adding, "At that time, another company offered a purchase price of approximately 400 billion KRW, and considering the difference of about 80 billion KRW, the complainant’s damages are expected to reach several tens of billions of KRW."

Earlier, Hahn & Co, after engaging in a legal dispute with the owner family led by former chairman Hong Won-sik, signed a stock purchase agreement (SPA) in January to acquire 53.08% of Namyang Dairy Products’ shares from the Hong family for 310.7 billion KRW, following a Supreme Court ruling. With the private equity fund becoming the largest shareholder, the 60-year owner management system of Namyang Dairy Products also came to an end.

Signboard at the entrance of Namyang Dairy Products headquarters on Dosan-daero, Gangnam-gu, Seoul [Image source=Yonhap News]

Hong’s legal counsel said, "Although the civil court ruling did not directly reflect this content in the stock purchase agreement, it is clear that damages were caused by the accused’s fraudulent acts, which is why this complaint has been filed," adding, "this is intended to sound an alarm against deceptive practices that stop at nothing in the process of a leading domestic private equity firm acquiring management rights of a top-tier company in the industry."

This is not the first time former chairman Hong has filed lawsuits against Hahn & Co and Namyang Dairy Products. In May, he filed a lawsuit against Namyang Dairy Products demanding retirement benefits amounting to approximately 44.4 billion KRW.

In response, Namyang Dairy Products and Hahn & Co have also filed lawsuits worth hundreds of billions of KRW against former chairman Hong. Hahn & Co filed a damage compensation lawsuit worth 50 billion KRW, claiming that Hong failed to fulfill the stock purchase agreement signed in 2021 in a timely manner. In August, Namyang Dairy Products filed a complaint against former chairman Hong and three former executives on charges of embezzlement under the Special Act. The amount the company claims was embezzled is approximately 20.1 billion KRW. Accordingly, on the 7th, the Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office conducted a search and seizure of Hong’s residence and Namyang Dairy Products’ headquarters office.

Additionally, last month Namyang Dairy Products announced that it is undergoing legal procedures to receive high-value artworks from former chairman Hong’s side. Namyang Dairy Products claims that the company purchased three works, including "Still Life with Lamp" by the famous pop art artist Roy Lichtenstein, but immediately after the purchase, the ownership was transferred to former chairman Hong’s side without following proper procedures.