Namyang Dairy Products Ends 60-Year 'Owner System'... Seeking Breakthrough to Escape Deficit

Supreme Court Ruling... Management Rights Transferred to Private Equity Fund Hahn & Company
Accumulated Adverse Factors Including Abuse of Power Controversy and Owner Family Risks
Challenges Including Corporate Image Renewal and Performance Improvement

Founded in 1964, Namyang Dairy Products is ending its owner-management system after 60 years and welcoming a new owner. Attention is focused on whether the deteriorating business environment, marked by numerous adverse factors such as owner-family risks damaging the company's image and the main products struggling in the market, will improve. Industry insiders are also keenly watching whether Namyang Dairy Products can restore its former glory through reform.

Namyang Dairy Products Headquarters, Dosan-daero, Gangnam-gu, Seoul
[Image source=Yonhap News]

The Fate Lies with Private Equity... Speeding Up Management Normalization

The Supreme Court's 2nd Division (Presiding Justice Cheon Dae-yeop) on the 4th upheld the lower court's ruling in favor of the plaintiff in the appeal case filed by domestic private equity firm Hahn & Company (Hahn & Co.) against Hong Won-sik, chairman of Namyang Dairy Products, and his family regarding a stock transfer lawsuit. In May 2021, Chairman Hong signed a Stock Purchase Agreement (SPA) to sell his 53.08% stake in Namyang Dairy Products to Hahn & Co., but later reversed the decision, leading to a legal battle lasting over two years. The Supreme Court ruling on this day put an end to the dispute, and Chairman Hong will hand over management rights to Hahn & Co. This marks the end of the owner-management system of Namyang Dairy Products, which was passed down from the late founder Hong Doo-young to his eldest son, Chairman Hong.

Hahn & Co. welcomed the Supreme Court's decision, stating, "We hope Chairman Hong respects the Supreme Court's ruling." They added, "To normalize the company's management, the SPA will be promptly executed, and together with Namyang Dairy Products' employees, we will establish management improvement plans. We aim to restore consumer trust and create a new Namyang Dairy Products." Namyang Dairy Products also stated, "With the conclusion of the management rights dispute, all members plan to do their best in their respective roles to quickly normalize the company's management."

Hahn & Co., the new owner of Namyang Dairy Products, is a private equity fund primarily engaged in 'buyouts,' acquiring company shares, growing the business, and then reselling to recover investments. Previously, they acquired Woongjin Foods in 2013, increased its corporate value, and sold it five years later for more than twice the purchase price. Recently, they have also acquired companies in manufacturing, shipping, distribution, and hotel sectors such as SK Shipping.

Management normalization is urgent at Namyang Dairy Products. The company’s image has suffered from repeated owner-family risks, including the so-called 'agency store bullying' scandal in 2013, Chairman Hong’s controversy over directing defamatory comments against competitors, and the founder’s granddaughter’s drug use incident, which even sparked boycott sentiments. Performance has also declined. Amid the COVID-19 pandemic, annual sales, which once exceeded 1 trillion won, dropped to the 900 billion won range from 2020, and operating losses have continued at 70 to 80 billion won levels since then.

A Namyang Dairy Products official said, "Despite worsening internal and external conditions, marketing and new product R&D continued steadily, but internal confusion, conflict, and anxiety were significant due to the management rights dispute. Regardless of the outcome, there is a strong desire for the company to quickly normalize in a more stable environment."

Industry insiders expect that since Hahn & Co. has pledged to retain existing Namyang Dairy Products employees, large-scale restructuring is unlikely immediately after acquiring management rights. However, legal disputes such as the damage compensation lawsuit between Chairman Hong and Hahn & Co., as well as the process of share disposal, will require time before Namyang Dairy Products can fully normalize. Hahn & Co. urged, "The long dispute has ended, and only the procedure for Chairman Hong to execute the SPA remains. We hope Chairman Hong respects the Supreme Court ruling in this regard."

"Image Will Improve by Escaping Owner Risks" vs. "Market Slump Makes Recovery Difficult"

Namyang Dairy Products built competitiveness in the past by launching hit products in white milk, fermented milk, and powdered milk, as well as beverages. Representative products include Namyang powdered milk made with domestic technology, Delicious Milk GT, Einstein, Bulgari, and French Cafe. Industry experts believe that private equity funds, which focus on corporate growth, will concentrate on enhancing Namyang Dairy Products' competitiveness once they secure management rights.

An industry insider said, "Namyang Dairy Products had competitiveness in the drinking milk market, but as the corporate image declined and market conditions worsened, the company competed through discount sales, leading to its perception as a 'low-price' brand. Since agency store competitiveness is not lagging, if a new owner pursues a premium strategy, it could significantly change the market landscape." Another insider added, "Given Namyang Dairy Products has well-known product lines, effective rebranding could improve corporate image and recover performance in the long term. There is also a possibility of resuming large-scale new businesses or investments that were difficult to decide due to management rights lawsuits."

However, the continuing low birthrate trend, with a total fertility rate dropping to around 0.7, poses a challenge for the milk and powdered milk business. Regardless of resolving owner risks, there is a lack of momentum for a short-term performance rebound. In response, Namyang Dairy Products entered the protein beverage market in 2022 with the 'Takefit' brand. They are also seeking breakthroughs with processed milk products like the consistently in-demand 'Bulgari' and 'Chocoemong' and new products utilizing them.

A Namyang Dairy Products official said, "We have diversified our business portfolio and pursued strategies to reduce operating losses in preparation for the milk and powdered milk market slump. We have achieved some of the targeted results." The company's sales up to the third quarter of last year were 755.4 billion won, an increase of 32.8 billion won from 722.6 billion won in the same period the previous year, while operating losses during the same period were 28 billion won, a decrease of 32.4 billion won compared to 60.4 billion won in the previous year.

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