MBK's 'Financial Power - Justification - Legal Risk - Casting Vote' Cards Simultaneously... Final All-Out Attack

MBK Partners has launched a final all-out offensive in the merger and acquisition (M&A) battle against Korea & Company Group (formerly Korea Tire Group) by simultaneously playing four cards: 'financial power, justification, judicial risk, and casting vote.' After Cho Yang-rae, Honorary Chairman of Korea & Company, purchased shares as an ally of Cho Hyun-beom, Chairman of Korea & Company, causing the stock price to plunge back to the 10,000 won range, MBK raised its tender offer price by 20%. Additionally, MBK is applying all-around pressure by requesting financial authorities to investigate market manipulation and disclosure violations involving Honorary Chairman Cho and white knights such as hy (Korea Yakult) on the chairman's side. MBK, which is advancing the cause of corporate governance improvement, has even secured a public tender offer support declaration from Cho Hee-kyung, the eldest daughter of Honorary Chairman Cho and Chairwoman of the Korea Tire Sharing Foundation, who was considered a 'casting vote,' accelerating the conclusion of the Korea & Company Group management rights dispute.

Cho Hyun-beom (left), the second son of Cho Yang-rae, Honorary Chairman of Hankook & Company Group, and Cho Hyun-sik, the eldest son and advisor of Hankook & Company.

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According to the financial investment industry on the 18th, MBK Partners raised its tender offer price for Korea & Company from the previous 20,000 won to 24,000 won on the 15th. The revised offer price is about 51% higher than Korea & Company's closing price of 15,850 won on that day. Previously, MBK had been conducting a tender offer since the 5th together with Cho Hyun-sik, Korea & Company Advisor and eldest son of Honorary Chairman Cho, and Cho Hee-won, the second daughter, competing for shares against current Chairman Cho Hyun-beom. The stock price consistently exceeded the tender offer price (20,000 won) after MBK announced its tender offer strategy but plunged back to the 10,000 won range on the 12th when Honorary Chairman Cho expressed support for Chairman Cho Hyun-beom's defense of management rights. On the 7th, Honorary Chairman Cho purchased a total of 57 billion won worth of Korea & Company shares through on-market purchases, raising the shareholding ratio of Chairman Cho and related parties from 42.89% to 45.61%. Following this, some in the industry speculated that the momentum in the management rights dispute had tilted in favor of Chairman Cho with the father's support, but MBK's sudden decision to raise the tender offer price has put minority shareholders back in a dilemma. Shareholders wishing to participate in the tender offer can apply to sell their shares through the designated securities firm, Korea Investment & Securities, until the 22nd. Since the settlement date and the trade execution date differ by two trading days, shares must be purchased by the 20th to respond to the tender offer by the 22nd.

Regarding the stock price's sharp plunge back to the 10,000 won range on the 15th after the disclosure of Honorary Chairman Cho's share acquisition, MBK stated, "It is difficult to avoid the 10,000 won range under the existing governance structure." MBK believes that "it has been proven that shareholder value and corporate value cannot be properly realized under the existing governance system," adding, "The market's prediction that the stock price would revert to 10,000 won if the tender offer fails has been confirmed, and more importantly, the market has no expectations for the existing major shareholders." From the early stages of the management rights dispute, MBK cited allegations of embezzlement and breach of trust surrounding Chairman Cho as grounds for corporate governance improvement. Chairman Cho was sentenced to prison in 2019 for bribery and was indicted in March on charges of embezzlement and breach of trust amounting to around 20 billion won, as well as unfair support of affiliates. Due to Chairman Cho's repeated judicial risks, there have been evaluations that Korea & Company Group, the top domestic and sixth-largest global tire manufacturer, has been unable to respond swiftly to changes in the tire industry centered on electric vehicles. The stock price also hovered around the 10,000 won level before the management rights dispute and struggled to gain strength.

Recently, MBK has been pressuring Honorary Chairman Cho, father of Chairman Cho, and white knights such as hy by mentioning procedural violations, legal risks, and possible voting rights restrictions. MBK requested the Financial Supervisory Service to investigate Honorary Chairman Cho's on-market purchase of 2,583,718 shares (2.72%) of Korea & Company over six trading days from the 7th to the 14th, alleging strong suspicion of market manipulation. MBK also claims that although Honorary Chairman Cho began accumulating shares on the market from the 7th, Chairman Cho failed to disclose the related party shareholding on the 8th, violating the large shareholder reporting obligation. If the violation is proven, Honorary Chairman Cho's voting rights could be restricted for six months. hy, classified as an ally of Chairman Cho, also holds about 1.5% of shares acquired on the market. Regarding this, MBK stated, "In hy's case, since the stock price is likely to fall back to the 10,000 won range once the management rights dispute ends, if a company rather than an individual decides to purchase shares without plans to respond to the tender offer, it could be a breach of the fiduciary duty of care by the relevant executives toward the company." MBK emphasized, "From the perspective of a company already holding Korea & Company shares, responding to this tender offer, which is the last opportunity to realize profits, would be a decision consistent with the fiduciary duty of care."

Meanwhile, Cho Hee-kyung, eldest daughter of Honorary Chairman Cho and Chairwoman of the Korea Tire Sharing Foundation, expressed support for MBK's tender offer in a statement released the previous day. The market has anticipated that if the gap in shareholding between Chairman Cho, Advisor Cho, and MBK narrows through the tender offer, Chairwoman Cho's shareholding direction would become the 'casting vote.' Chairwoman Cho stated, "I believe the initial cause of this dispute was Cho Hyun-beom," adding, "I am convinced that my father's recent actions are not based on his own judgment." She continued, "We must correct the exploitation of an unhealthy father for selfish gain," and added, "I have come to support the positions of Advisor Cho and Cho Hee-won for the improvement of Korea & Company's governance."

Chairwoman Cho holds 0.81% of Korea & Company shares but had not expressed a particular stance during this dispute process. Currently, Chairman Cho holds 42.03% of Korea & Company shares. In contrast, Advisor Cho holds 18.93%, and Honorary Chairman Cho's second daughter, Cho Hee-won, holds 10.61%. The combined shareholding of the three, including Chairwoman Cho, is 30.35%. Chairwoman Cho was the first to raise concerns when Honorary Chairman Cho transferred shares to Chairman Cho through a block deal (off-hours large-scale trade) in 2020. At that time, Chairwoman Cho filed a petition for limited guardianship against Honorary Chairman Cho, who handed over management rights to Chairman Cho, and the dispute escalated with Advisor Cho joining in. The court plans to hold a hearing in January next year based on the hospital's psychiatric evaluation results.

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