Will the Sale of Namyang Dairy Products Fail... 'Contract Termination' D-day

Hong Won-sik, chairman of Namyang Dairy Products, is leaving after holding a public apology press conference related to the 'Bulgari Incident' at Namyang Dairy Products headquarters in Gangnam-gu, Seoul on the 4th. Last month, Namyang Dairy Products announced at the 'Symposium on Developing Antiviral Foods in the COVID-19 Era' that the Bulgari product was confirmed to reduce COVID-19 by 77.8%. However, the research results were reported to have exaggerated the results of animal 'cell-level' experiments, causing controversy. In response, Hong Won-sik, chairman of Namyang Dairy Products, announced his intention to resign through the public apology press conference on the same day. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Lee Seung-jin] The merger and acquisition (M&A) of Namyang Dairy Products is highly likely to fall through. Han & Company (hereafter Han & Co), a private equity firm that agreed to acquire Namyang Dairy Products, filed a lawsuit on the 23rd at the Seoul Central District Court against the sellers, including Chairman Hong Won-sik of Namyang Dairy Products, demanding the prompt fulfillment of the transaction closing obligations, escalating the matter into a legal dispute.

Contract Closing D-day... Dramatic Agreement Unlikely

On May 27, Namyang Dairy Products signed a stock purchase agreement to sell 53.08% of shares held by Chairman Hong to Han & Co for 310 billion KRW. The payment deadline was set for the 31st, and if there is no agreement between the parties, the deadline cannot be missed. Although some speculate that the two sides might reach a dramatic agreement today, considering their previous actions, it is highly likely that the matter will end up in legal battles.

An extraordinary shareholders' meeting scheduled for August 30 to approve the sale-related agenda saw Chairman Hong absent. Subsequently, the meeting was postponed to September, after the payment deadline of the 31st, raising the possibility of contract termination. Recently, Chairman Hong hired a litigation-specialized law firm (LKB & Partners), and his two sons were promoted and reinstated, signaling a change of heart.

Han & Co’s announcement yesterday revealing the lawsuit against Chairman Hong also indicates that the possibility of an agreement is extremely low. Namyang Dairy Products is expected to announce its position on the sale either this afternoon or tomorrow, making it highly likely that the sale will ultimately fall through.

Speculation Surrounding Difficulties in the Sale

The crisis of the sale falling through is presumed to stem from Chairman Hong’s side demanding changes to the contract terms. Han & Co stated in their announcement, "Despite continuous inquiries and persuasion, the sellers remained silent for over two weeks and then proposed negotiations by setting unreasonable conditions as prerequisites." They added, "These demands have no contractual basis or mention whatsoever, and such matters cannot be arbitrarily decided between parties trading approximately 53% of a listed company’s shares. Above all, these unreasonable requests would pose a critical obstacle to overcoming the existential crisis triggered by governance issues, which Namyang Dairy Products’ employees are fighting desperately to resolve, so we politely declined."

Various theories are circulating in the industry regarding this issue. Hong Jin-seok, the eldest son of Chairman Hong and former Executive Director of Planning and Marketing who was dismissed in April, was reinstated as Executive Director of Strategic Planning on May 26, and on the same day, the younger son Hong Beom-seok was promoted to an unregistered executive director. There are rumors that Chairman Hong demanded the maintenance of his sons’ positions. However, in a resignation press conference last May, Chairman Hong stated he would not pass on management rights to his children.

There are also claims that Chairman Hong tried to retain Namyang Dairy Products’ dining brand 'Baekmidang' separately from the company sale. Baekmidang is known to have been deeply involved by Chairman Hong’s wife, Advisor Lee Woon-kyung, since the brand’s launch. Additionally, the younger son Hong Beom-seok has been leading Baekmidang since joining Namyang Dairy Products in 2009, showing strong attachment to the brand. Speculation suggests there might have been a precondition to spin off the dining business division including Baekmidang, which could have caused conflicts.

In the investment banking industry, there are also reports that Chairman Hong’s side demanded a transaction price higher than the originally contracted sale price after signing the stock purchase agreement. The agreed price of 310.7 billion KRW was considered a bargain sale, as it did not even reach the net book value of Namyang Dairy Products’ tangible assets (buildings, land, etc.) of 369.3 billion KRW. From Chairman Hong’s perspective, it was inevitable to be dissatisfied with selling the company he built over a lifetime at a low price, and it is speculated that the relationship deteriorated after he demanded an increase in the sale price.

A Namyang Dairy Products official stated, "If the sale deadline is missed, the seller (Chairman Hong) will announce an additional position."

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