[Invest&Law] Hahn & Co. vs. Hong Wonsik: 50 Billion Won M&A Delay Damages Verdict Due Next Month

Hahn & Co. Claims Damages From Delayed Share Transfer in Namyang Dairy Acquisition
Hong, Former Chairman, to Appear in Criminal Court on June 20 After Release on Bail

The first trial verdict in the civil lawsuit filed by private equity fund (PEF) manager Hahn & Company (Hahn & Co.) against former Namyang Dairy Products Chairman Hong Won-sik over damages caused by delays in a merger and acquisition (M&A) is scheduled for next month.

According to legal sources on June 18, the Seoul Central District Court’s Civil Agreement Division 31 (Presiding Judge Nam Insu) concluded the first trial proceedings on June 12 for Hahn & Co.’s damages claim lawsuit of 50 billion won against Hong and his family, and set July 24 as the date for the verdict.

Previously, in May 2021, Hahn & Co. and Hong’s side agreed to an M&A deal worth over 300 billion won for Namyang Dairy Products and began negotiations for a stock purchase agreement. Following the news, Namyang Dairy Products’ stock price, which had been in the 300,000 won range per share, soared to the 700,000-800,000 won range. However, Hong refused to transfer the shares, citing issues with the contract terms. When additional negotiations also broke down, Hahn & Co. filed a lawsuit in August of that year demanding the transfer of shares in accordance with the contract. After 864 days, in January last year, the Supreme Court ruled in favor of Hahn & Co., finalizing the share transfer lawsuit and bringing an end to Namyang Dairy Products’ 60-year owner management system.

This damages lawsuit was filed by Hahn & Co., claiming, “We will seek additional compensation for the damages caused to Namyang Dairy Products and others due to the delayed share transfer.” The argument is that Hong’s side should compensate for losses such as the decline in Namyang Dairy Products’ corporate value and management vacuum caused by the delayed M&A. The court’s decision is expected to serve as an important precedent regarding the recognition and calculation of corporate damages in future M&A disputes.

Meanwhile, Hong is scheduled to appear at the Seoul Central District Court’s Criminal Division 21 (Presiding Judge Lee Hyunbok) on June 20 for his criminal trial on charges of embezzlement and breach of trust. He was indicted and detained at the end of last year on charges including violations of the Act on the Aggravated Punishment of Specific Economic Crimes, but was granted bail on May 26 and will stand trial without detention.

Prosecutors have charged Hong with causing approximately 17.1 billion won in damages to the company by involving businesses operated by relatives in transactions, and accepting 4.3 billion won in kickbacks from partner companies. Prosecutors allege that Hong committed a total of over 20 billion won in embezzlement and breach of trust, including the private use of company-owned luxury villas, vehicles, and corporate credit cards. His wife and two sons have also been indicted for misappropriating approximately 3.7 billion won in company funds.

Hong is also accused of participating in false advertising in 2021, claiming that Namyang Dairy Products’ yogurt “Bulgaris” was effective in preventing COVID-19, and instructing the destruction of related evidence during the subsequent investigation.