Taekwang Group vs. Truston Dispute Intensifies... Injunction Ruling Seen as First Turning Point

Taekwang Group Criticizes Truston's High-Priced Tender Offer Proposal
"Greenmail" or "Shareholder Activism"? Debate Intensifies
Court Decision on Legality of EB Issuance in the Spotlight

Taekwang Group and the activist fund Truston Asset Management (Truston) are intensifying their dispute. The conflict, which began with an attempt to issue exchangeable bonds (EB) using treasury shares, has escalated into a legal and public battle, fueled by controversy over a high-priced tender offer and accusations of "greenmail."

Taekwang Industrial: "Truston's 'greenmail' aimed at capital gains"... Files complaint with the Financial Supervisory Service

According to the investment banking (IB) industry on July 30, Taekwang Industrial and Truston each released press statements this week, directly criticizing each other.

On July 28, Taekwang Industrial stated, "Truston demanded a public tender offer for treasury shares at a price more than three times the market value during February and March this year." The company classified this as an act of 'greenmail(green mail)' aimed at capital gains and announced that it had filed a complaint with the Financial Supervisory Service. Greenmail refers to a letter sent by an investor threatening management control to the major shareholders. The term combines 'blackmail,' meaning extortion, with the color of the dollar.

Taekwang Industrial explained, "A high-priced tender offer could cause a temporary surge followed by a sharp drop in the stock price, leading to potential market disruption or stock price manipulation charges, which could trigger investigations by financial authorities and prosecutors. Therefore, we refused the demand." The company added, "If we had accepted the demand and the stock price had risen to 2 million won, the valuation of Truston's stake would have increased by 9.33 billion won. In addition, if the number of shares in circulation decreases after the tender offer, trading volume will inevitably decline, which could eventually lead to designation as an administrative issue and satisfy delisting requirements."

According to the content of the shareholder letter, Truston proposed that Taekwang Industrial repurchase and cancel treasury shares worth 100 billion won at 2 million won per share. At the time, Taekwang Industrial's share price was 621,000 won, making the proposed price about 3.2 times higher.

Truston countered the previous day, stating, "Taekwang Industrial's complaint distorts the facts and disparages the legitimate exercise of minority shareholders' rights." The company added, "The shareholder letter sent to Taekwang Industrial clearly stated several times that 'we will never participate in the tender offer and will not trade any shares held before the tender offer.'" They emphasized, "This was part of a discussion to enhance corporate value, and there was absolutely no intention to sell."

Furthermore, Truston argued, "The price per share in the shareholder letter was set at 0.4 times the price-to-book ratio (PBR), a conservative figure based on the valuation standards for unlisted companies under the Inheritance and Gift Tax Act." The company also stated, "We repeatedly expressed the possibility of re-evaluating the price through a fair third party."

Truston proposed "repurchase and cancellation at 2 million won per share"... Controversy over high-priced buyback demand

The current conflict began when Taekwang Industrial's board of directors decided on June 27 to issue EBs based on all its treasury shares (about 24.4%), to which Truston strongly objected. Truston immediately filed for an injunction with the court, citing breach of fiduciary duty by the directors, and after Taekwang Industrial received criticism from financial authorities, the company temporarily suspended the EB issuance.

An EB is a bond that can be exchanged for specific shares after a certain period. For companies, it allows the use of treasury shares as collateral while avoiding capital dilution from new share issuance. The issue is that treasury shares are essentially internal reserves that could be considered the property of existing shareholders. When treasury shares are sold or canceled, metrics like EPS (Earnings Per Share) or ROE (Return on Equity) improve, making them a typical means of shareholder return and stock price support.

Eom Sujin, a researcher at Hanwha Investment & Securities, commented, "If the exchange rights of EBs issued with treasury shares as collateral are exercised, the ownership percentage of existing shareholders could be significantly diluted. This also conflicts with the new government's legislative efforts to protect shareholder value by actively promoting the mandatory cancellation of treasury shares."

Meanwhile, Taekwang Industrial raised concerns about Truston's large-scale sale of shares before a block deal with OK Capital. During May and June, Truston sold 13.3% (9,023 shares) of its holdings in succession, and Taekwang Industrial pointed out, "This is the first time since 2021 that Truston, after accumulating shares, has disposed of such a large quantity." The company argued, "Given the timing before the recent block deal, there is sufficient reason to suspect that Truston anticipated a decline in the stock price and sold in advance." On July 18, Truston transferred 25,970 shares of Taekwang Industrial (a 2.33% stake) to OK Capital in a block deal at 1,155,000 won per share.

Truston maintains that "the transaction was legal." A Truston representative stated, "It took place before Taekwang Industrial's public announcement of the EB issuance, so Taekwang Industrial's claim is completely unfounded. In particular, all decisions regarding the block deal were made after Taekwang Industrial's EB issuance announcement."

As the dispute between the two parties expands, the court's decision on the EB-related injunction is seen as the first critical turning point. Recently, the Civil Division 50 of the Seoul Central District Court (Presiding Judge Kim Sanghun) held a hearing on Truston's application for an injunction to maintain the directors' illegal acts. Whether raising funds using treasury shares infringes on the rights of existing shareholders is a key issue.

Given the nature of injunction cases, a court decision is expected within a few weeks. If the court sides with Truston, not only will it be difficult for Taekwang Industrial to issue EBs, but the company will also have to reconsider its plans for using treasury shares. Conversely, if the court rules in favor of Taekwang Industrial, the company may resume EB issuance, using the acquisition of Aekyung Industrial and other new business initiatives as justification.