[Inside Chodong] There Are No Eternal Owners in the Capital Market

The Hankook & Company Group Management Dispute
This Week's Public Tender Offer Will Decide the Outcome
A Crucial Moment for Minority Shareholders

Cho Hyun-beom, chairman of Hankook & Company Group, is the second son favored by his father. Although he fights alone, shunned by his older brother and sisters amid a management rights dispute, he has strong allies in his "uncle" (Cho Seok-rae, Honorary Chairman of Hyosung) and his "father" (Cho Yang-rae, Honorary Chairman of Hankook & Company Group). He is also the son-in-law of former President Lee Myung-bak.

Originally, the father divided similar shares between the eldest son (Cho Hyun-sik, advisor of Hankook & Company Group) and the second son, putting their management abilities to the test. The older brother joined the company first and was promoted to executive faster than his younger brother, but the father did not insist on primogeniture succession.

The eldest son, Advisor Cho, was tasked with overseeing the holding company and discovering new businesses, while the second son, Chairman Cho, was ordered to oversee the business company, Hankook Tire. Their management abilities were evaluated over a long period.

Meanwhile, Chairman Cho Hyun-beom was caught up in legal risks. He was arrested and indicted on charges including receiving kickbacks from suppliers and embezzling company funds. Despite the legal risks tightening around Chairman Cho, the father sided with his second son. Chairman Cho received all of his father's shares, becoming the largest shareholder with a 42.9% stake.

The sister raised the issue first. Cho Hee-kyung, eldest daughter and director of the Hankook Tire Sharing Foundation, filed a petition for adult guardianship against their father in court, claiming that their father was too elderly to make proper judgments. The eldest son, Cho Hyun-sik, also joined the effort. However, the older brother, who could not overcome his younger brother holding over 40% of the shares, eventually gave up his vice chairman position and stepped down.

However, the younger brother’s legal risks continued, and a second management rights dispute erupted. This time, a private equity fund joined the fray. MBK Partners allied with the older brother and sisters, excluding Chairman Cho. Their strategy was to accumulate circulating shares through a public tender offer.

Chairman Cho’s holding is 42.03%, and including friendly shares, he is confident there is no problem defending management rights. MBK, armed with trillion-won funds, is also fighting back. MBK raised the public tender offer price from 20,000 won to 24,000 won. Combining Advisor Cho’s 18.93% stake and the two sisters’ 11.42% stake totals 30.35%. If MBK achieves its public tender offer target (20.35% to 27.32%), it will surpass the majority.

The winner of this battle will be decided through this week’s public tender offer. From Chairman Cho’s perspective, it may feel unfair. He worked hard to gain his father’s recognition and was rewarded with management rights, yet he may feel anger toward his siblings who are turning their blades against him and the world.

However, it seems there are many points to consider beyond simply dismissing this as a hostile M&A attack by a private equity fund or a sibling feud. Our society and capital markets are no longer as tolerant as in the past toward major shareholders who treat companies as personal property and pursue selfish interests. Chairman Cho was arrested and indicted in March this year on embezzlement and breach of trust charges involving around 20 billion won and is currently out on bail. Previously, in 2019, he was also arrested and indicted on embezzlement charges and sentenced to three years in prison with a four-year probation. Since the trial is ongoing, the legal risks are expected to persist for a considerable time.

Considering the secured shares, Chairman Cho is likely to defend his management rights from a favorable position. However, minority shareholders also have a choice. After the management rights dispute ends, will the stock price reflecting future value be higher than 24,000 won? In the capital market, there are only shareholders, no eternal owners. The time has come for minority shareholders.

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