Bought a Car Expecting a Big Company Job... Two Years of False Hope Leave Workers Jobless [Seoul Milk Power Abuse] ①

How the False Hope Began
35 Billion Won in Damages Over Two Years of Acquisition Negotiations
Won the Lawsuit, But Responsibility Remains

"We trusted and waited for Seoul Milk's acquisition of the carton pack division. We did not sell the Gumi factory because there was a condition for employment succession."

Cho Younghan, CEO of Samyoung, which has supplied carton packs (milk cartons) to Seoul Milk for 40 years, was notified that the acquisition had fallen through after more than two years of what he described as "false hope." During this period, Samyoung lost its clients and the factory came to a halt, resulting in losses of approximately 3 billion won (about 3 billion KRW). In the end, the Gumi factory was sold to Nongshim. Over 40 workers lost their jobs overnight. One worker, believing he would soon become an employee of a major corporation, even bought a car, only to be left with debt. The cost of clinging to acquisition negotiations with a large company was the collapse of the workers' livelihoods.

According to the food industry on September 8, Samyoung had been a partner supplying milk cartons to Seoul Milk since 1986. The company diversified its client base to supply milk cartons to Busan Gyeongnam, Binggrae, Yonsei University, and Purmil, but more than half of its revenue came from Seoul Milk. Samyoung sought to sell its Gumi milk carton division to focus on the chemical materials sector, and Seoul Milk was the most proactive party in the process.

How Did the False Hope Begin?

In November 2021, Seoul Milk delivered a letter of intent to acquire the division for 14.5 billion won (about 14.5 billion KRW). A dedicated task force was formed to conduct legal, financial, and tax due diligence, and an on-site inspection of the Gumi factory was also conducted. The following year, Seoul Milk increased its acquisition budget to 15 billion won (about 15 billion KRW), and the board of directors and the general assembly of delegates approved the plan. The acquisition was considered "just a matter of time." In July 2023, 150 Seoul Milk executives and employees visited the Gumi factory, further raising expectations for the acquisition.

During this process, Samyoung gradually stopped supplying milk cartons to Seoul Milk's competitors, relying on the letter of intent. The letter included a clause stating, "The seller must not engage in any transactions that compete with or restrict the transfer of this business." As a result, Samyoung did not extend contracts with existing clients and did not renew contracts with tenants of the Gumi factory building.

However, the situation changed rapidly. In September 2023, the acquisition proposal was rejected at a special general assembly of Seoul Milk delegates. A source familiar with Seoul Milk's internal affairs said, "The approval of the acquisition budget by the general assembly in 2022 was practically equivalent to a decision to acquire," adding, "The reason for convening another special general assembly was likely due to internal conflicting interests."

In fact, the minutes of the regular board meeting held on November 14, 2022, show that directors debated whether to proceed with the acquisition. One director stated, "Matters resolved by the general assembly cannot be canceled," while another argued, "Let's change the priority of budget execution."

Contradictory testimony also emerged in the witness statements. A Seoul Milk official initially said, "The establishment of a subsidiary requires a resolution by the general assembly," but later changed their statement to, "It does not require a resolution by the general assembly."

35 Billion Won in Losses Over Two Years of Acquisition Negotiations

The losses mounted as acquisition negotiations dragged on. Sales plummeted from 13 billion won (about 13 billion KRW) in 2020 to 7.8 billion won (about 7.8 billion KRW) in 2023, with cumulative losses reaching 3.5 billion won (about 3.5 billion KRW) during this period. This figure includes operating losses and lost rental income. A Samyoung official explained, "It was difficult to extend business relationships or negotiate contract prices with Seoul Milk's competitors," adding, "We judged that such actions could become obstacles to the acquisition, and rumors that Seoul Milk would acquire Samyoung's division made it difficult to extend contracts with other milk companies as well."

Ultimately, immediately after the acquisition negotiations broke down, the factory was sold to Nongshim for 12 billion won (about 12 billion KRW). Employment succession did not take place. More than 40 workers were forced out onto the streets. Cho Younghan, CEO of Samyoung, said, "Nongshim had wanted to buy the Gumi factory for years, but we wanted to sell it to a company that could guarantee employment succession. The Gumi factory is located right in front of Nongshim's own Gumi factory, and Nongshim wanted to use it as a product management center." He added, "Trusting and waiting for Seoul Milk's acquisition ultimately became the root cause of the problem."

Moon Jinseop, President of Seoul Milk Cooperative.
[Photo by Seoul Milk Cooperative]

Samyoung Won the Lawsuit, But Responsibility Remains

On October 20, 2023, Samyoung closed the factory, and Seoul Milk immediately redistributed Samyoung's supply volume (26%) to its existing suppliers and terminated its purchase contract with Samyoung around December. At the same time, Seoul Milk seized the entire deposit of 265 million won (about 265 million KRW).

The following year, Samyoung filed a lawsuit seeking compensation for losses due to the termination of the contract, including the loss of clients and accumulated losses, as well as the return of the deposit. Samyoung argued, "Seoul Milk repeatedly expressed its intention to acquire and prolonged the negotiations, which gave us a legitimate expectation that a contract would be signed." However, Seoul Milk countered, "Decision-making in a cooperative is up to the general assembly of delegates, and there is always uncertainty."

After five court hearings over the course of a year, the court ruled in favor of Seoul Milk. The court found, "There is insufficient evidence that Seoul Milk gave Samyoung a definite and reliable expectation of acquisition," citing inconsistencies between the alleged acquisition promises and the statements of Seoul Milk officials.

Samyoung, dissatisfied with the outcome of the first trial, appealed in April, and the case is currently in the appellate court. In the written appeal submitted by Samyoung, it was stated that the cost-to-sales ratio before the acquisition process was 93%, but rose to 99% in 2021, 107% in 2022, and 121% in 2023 as the company prepared for the acquisition. Despite enduring monthly losses of over 200 million won (about 200 million KRW), Samyoung could not let go of the expectation that the acquisition would soon be completed.

In the appellate court, Samyoung argued that Seoul Milk should be held responsible for creating a legitimate expectation of contract conclusion by expressing its intention to acquire, conducting due diligence, and reflecting the acquisition in its budget over a long period. Samyoung further demanded recognition of damages and the full return of the deposit. CEO Cho lamented, "Samyoung did everything Seoul Milk asked and waited as they wanted, but a single decision by Seoul Milk's management destroyed a small partner company's business."

A food industry official commented, "Although Seoul Milk won the first trial, this case has revealed the irresponsible attitude of a giant cooperative. Regardless of the legal judgment, it will be difficult for them to avoid moral responsibility."

Seoul Milk stated, "There was a first trial ruling in the lawsuit with Samyoung, and since both sides have appealed and the case is currently in the appellate court, it is difficult to comment on the specifics. The cooperative respects the court's judgment and is faithfully following the procedures."