Sibling rivalry for Hankook Tire control takes new turn as MBK steps in

The sibling rivalry for management control of Hankook Tire & Technology Co., South Korea’s top tire maker, has taken another turn as the eldest son of the conglomerate has joined hands with MBK Partners Ltd. to oust his younger brother from his post as group chairman.

Cho Hyun-sik, advisor to Hankook & Company Co., the holding company of Hankook Tire, has teamed up with MBK, a Seoul-based private equity firm, to openly buy Hankook & Company’s shares from retail investors through a newly launched investment company, Ventura Co.

Ventura is a special-purpose company created by MBK Partners’ special situations fund, MBKP SS.

Hankook & Company has a controlling 30.67% stake in Hankook Tire & Technology, the world’s sixth-largest tire maker.

Ventura plans to buy Hankook & Company’s shares at 20,000 won a share from Dec. 5 through Dec. 24 in the market, Hankook said in a regulatory filing on Tuesday.

The purchasing price of 20,000 won is a 19% premium over the stock’s closing price of 16,820 won on Monday. But the stock on Tuesday surged by the daily limit of 30% to 21,850 won, boosted by news of the share purchase plan.

Ventura aims to buy Hankook & Company shares to own a stake between 20.35% and 27.32% worth as much as 518.6 billion won ($395 million), the regulatory filing showed.

MBK Partners, which focuses on investment in Asia, will largely provide the acquisition funds, industry sources said.

If all goes to plan, Cho Hyun-sik’s stake in the holding company will rise from the current 18.93% to between 39.28% and 46.25%. When combined with the stakes held by his friendly shareholders, he would have control between 49.89% and 56.86% of the company, the filing showed.

His sister Cho Hee-won, who’s friendly with her brother Cho Hyun-sik, has a 10.61% stake in Hankook & Company.

DÉJÀ VU

The family feud began in June 2020 when their father and then Chairman Cho Yang-rai, now 86, handed over his entire stake in Hankook & Company to Cho Hyun-bum, the second son, and named him to lead the company.


Cho Hyun-bum, now chairman of the group, owns 42.03% of Hankook & Company as the company’s single largest shareholder.

The elder son, Cho Hyun-sik, and his other sister Cho Hee-kyung, chief of Hankook Tire Foundation, cried foul, objecting to their father’s move.

The daughter questioned her father’s decision and filed an adult guardianship request with a local court, saying “We must determine whether his [the father’s] decision was made voluntarily and in a healthy state of mind.”

She has a 0.81% stake in Hankook & Company.

An adult guardian is a person who has the legal authority, and the corresponding duty, to care for the personal and property interests of another person, called a ward, who has difficulty making decisions due to old age, disability or illness.

Industry sources said on Tuesday that medical checks on the father, Cho Yang-rai, now Hankook’s honorary chairman, found that he is mentally healthy and shows no signs of dementia.

At the annual general shareholders’ meeting in March 2021, the elder son tried to oust his younger brother but the bid came to nothing after losing a vote on the formation of the board of directors.

JUDICIAL RISKS SURROUNDING CURRENT CHAIRMAN

Cho Hyun-bum, the chairman of the group, faces several legal risks, apparently giving his elder brother an excuse to kick him out of chairmanship.

In March, the younger Cho was arrested for embezzlement, breach of trust and unfair business practices.

He is alleged to have misappropriated company money for personal purposes and unfairly supported a group affiliate.

In July, he was also indicted by prosecutors on charges of unfair trading with a domestic company with which he has close ties. He was detained but then released on bail.

“Hankook & Company faces several legal risks due to its largest shareholder. And its board of directors is not properly accommodating demands of general shareholders for a change,” Ventura said in the regulatory filing.

“Thus, we are going to secure management control of the company through an open share purchase. We’re seeking improved corporate governance, innovation, enhanced shareholder value and stable financial structure.”

DEAL BETWEEN MBK PARTNERS AND CHO HYUN-SIK

MBK Partners-backed Ventura, Cho Hyun-sik and Cho Hee-won on Nov. 30 signed a deal regarding how to exercise their rights as the main shareholders of Hankook & Company and run the company if they successfully acquire enough stakes in it.

Under the deal released by the public disclosure on Tuesday, the partners agreed not to side with Hankook & Company Chairman Cho Hyun-bum in exercising their voting rights on critical issues.

The partners will also not dispose of the to-be-acquired shares of Hankook & Company to a third party without the prior consent of each party.

If they successfully acquire enough shares through the open bidding and secure more than half of the entire stake, MBKP SS will fill more than half the board seats with its nominations while Cho Hyun-sik will name one less person on the board.

A new chief executive of Hankook & Company will be appointed through negotiations between the partners. If there’s no agreement, MBKP SS will name the CEO, the deal showed.

The partners also agreed that MBKP SS appoints the majority of members of Hankook & Company’s outside director candidate recommendation committee and the personnel committee, which will be newly established.

Those who wish to sell their shares in Hankook & Company to Ventura must file a request with Korea Investment & Securities Co. by Dec. 22, two days ahead of the deadline as Dec. 24 is Sunday.

Industry watchers said Cho Hyun-sik may find it hard to succeed in acquiring enough stakes in Hankook & Company to oust his younger brother, given that the stock’s price has already risen above Ventura’s proposed price of 20,000 won apiece.

Chairman Cho Hyun-bum is widely expected to launch a counterattack by seeking to amass more Hankook & Company shares at a higher price, analysts said.

With an additional 8% stake through a direct share purchase or supported by his friendly shareholders, he will own more than a simple majority of the company, easily defending his chairmanship.

Write to Jun-Ho Cha and Jong-Kwan Park at chacha@hankyung.com

In-Soo Nam edited this article.