Han&Co Chairman Hong Won-sik, Namyang Dairy Dispute Ultimately Leads to Litigation War

No Precedent for Contract Breach
Chairman Hong and Others Make Unreasonable Demands After Delayed Contract Fulfillment
Lawsuit Ends Upon Contract Execution

[Asia Economy Reporter Lim Jeong-su] The private equity firm Han & Company (Han & Co) has filed a lawsuit against Hong Won-sik, chairman of Namyang Dairy Products, and others. Han & Co claimed that the owner family, including Chairman Hong, delayed the sale of Namyang Dairy’s management control shares without reason and made unreasonable demands to Han & Co, even suggesting the possibility of contract withdrawal. They stated their position not to set a bad precedent in the mergers and acquisitions (M&A) market by failing to fulfill contracts.

Han & Co announced on the 30th that it filed a lawsuit on the 23rd at the Seoul Central District Court urging the prompt fulfillment of the transaction closing obligation against the sellers under the stock purchase agreement (SPA), including Chairman Hong. Han & Co explained that the lawsuit was an unavoidable measure due to the seller’s unreasonable delay in contract performance, excessive demands, and indications of contract cancellation.

A Han & Co official said, "If we overlook this situation, there is a high concern that a precedent will be set in the M&A market that disregards contracts and promises, which are as vital as life itself," adding, "We will fulfill our proper duties as an asset manager and take responsibility to uphold market order."

They also said, "Our confidence in Namyang Dairy’s potential and Han & Co’s intention to acquire remain unchanged," and explained, "If the seller decides to perform the contract at any time, the transaction will be completed and the lawsuit will be automatically terminated." They added, "We hope that the damage to not only Han & Co but also Namyang Dairy’s employees, minority shareholders, dealerships, and dairy farmers will be minimized, and that Namyang Dairy’s serious crisis will be overcome quickly."

We have conducted corporate acquisitions with many businesspeople based on mutual respect and trust. Thanks to them, we have successfully completed 27 management rights transactions without a single conflict since our founding, growing into one of Korea’s leading private equity funds.

However, on August 23, we filed a lawsuit at the Seoul Central District Court urging the prompt fulfillment of the transaction closing obligation against the sellers, including Chairman Hong Won-sik of Namyang Dairy.

We cannot help but feel heavy-hearted, but we have taken seriously the concerns of many that if this situation is left unattended, it will set a bad precedent and foster a trend in the M&A market that disregards contracts and promises, which are as vital as life itself.

Additionally, we have received support and encouragement from our investors regarding this matter. We will fulfill our proper duties as an asset manager and take responsibility to uphold market order through this lawsuit. Above all, we will do our utmost to ensure that the hopes of all Namyang Dairy employees, who wish for change and revival, are not dashed.

We would like to explain the circumstances that led us to file this lawsuit. In short, over the past few weeks, we made every effort through negotiations and persuasion to smoothly close the transaction, but due to the seller’s unreasonable delay in performance, excessive demands, and indications of contract cancellation, we concluded that it would be difficult to close the transaction based on our goodwill alone.

After several price negotiations between the parties, we accepted the seller’s final increased offer reflecting the headquarters building, factory, and other operating real estate and cash value, signing the stock purchase agreement on May 27 at a purchase price of 310.7 billion KRW (approximately 590.4 billion KRW for 100% equity, see footnote [1]), which is an 87% premium over market price.

Despite some twists and turns, the on-site due diligence proceeded as scheduled with the seller’s cooperation, and approval from the Fair Trade Commission was completed. The transaction closing schedule was set for 10 a.m. on July 30. The seller convened a board meeting on July 15 to call an extraordinary general meeting at 9 a.m. on July 30, exactly as we notified. Subsequently, both parties’ legal representatives and Namyang Dairy worked together to complete all preparations, including executive appointments and resignations registration and mutual securities account verification, based on the July 30 closing date.

However, as the closing date approached, we happened to learn that the seller had quietly appointed a separate law firm. We inquired with the seller to confirm whether there would be any disruption to the closing plan. Only then did the seller send us an unexpected and incomprehensible official letter around 10 p.m. on July 29 claiming they had never received notice that the closing date was July 30. The next morning at 9 a.m., without prior notice or consultation, the seller postponed the shareholders’ meeting by six weeks to September 14, beyond the closing deadline, and did not appear at the closing location all day.

Since that day, despite our repeated inquiries and persuasion, the seller remained silent for over two weeks. Eventually, they proposed negotiations by newly presenting unreasonable “preconditions” that Namyang Dairy would bear for the personal benefit of the seller family. Furthermore, contrary to the seller’s public statement on August 17, they suggested the possibility of attempting to cancel the stock purchase agreement if negotiations were not concluded by August 31.

We judged these demands to be (1) completely unsupported or mentioned in the contract, (2) matters that cannot be arbitrarily decided between parties trading about 53% of a listed company’s shares, and (3) unreasonable requests that could critically hinder Namyang Dairy employees’ desperate efforts to overcome an existential crisis triggered by governance issues. Therefore, we politely rejected them. Nevertheless, the seller has not withdrawn these unfair demands and continues to refuse to perform the transaction, leading us to proceed with this lawsuit.

Meanwhile, we have witnessed the efforts of Namyang Dairy’s employees, dealerships, and dairy farmers on site and have become convinced that Namyang Dairy is a company capable of overcoming the current crisis. Our intention to acquire Namyang Dairy remains unchanged, so if the seller decides to perform the contract again at any time, the transaction will be completed immediately, and this lawsuit will effectively be automatically terminated. We sincerely hope that the seller’s promised commitments and contract will be fulfilled to minimize damage to all stakeholders, including Namyang Dairy’s employees, minority shareholders, dealerships, and dairy farmers, and that Namyang Dairy’s serious crisis will be overcome quickly.

*Footnote [1]: The purchase price of 590.4 billion KRW (100% basis) takes into account the need for massive investment to recover Namyang Dairy’s brand value and operations, overcoming nearly a decade of declining sales and six consecutive quarters of operating losses (approximately 100 billion KRW). Converted to enterprise value, this corresponds to about 12 times Namyang Dairy’s five-year average EBITDA.

This content was produced with the assistance of AI translation services.