Corporate management disputes spring up in S.Korea

An unprecedentedly high number of South Korean corporations have become targets of unwanted hostile takeover attempts or have been embroiled in management disputes following the ascent of local activist funds and private equity (PE) firms over the past two decades.

According to regulatory filings with DART, the Financial Supervisory Service’s (FSS) electronic disclosure system as of Sunday, 73 companies have been in 242 disputes over management since the beginning of this year, up 10.5% from the same period last year.

That's a record high number of management disputes in Korea since related data started to be compiled in 2000.

In particular, feuds at the country’s main Kospi market-listed companies have jumped markedly this year to 100 cases this year, from 60 cases last year.

In the past, most fights over management were waged by minority shareholders against majority shareholders at companies listed on the Kosdaq, the country’s secondary market. 

Market experts attributed the increase in Korean corporate management conflicts in recent years to active investments by wealthy domestic buyout funds at Kospi-listed companies and generational leadership change at family-owned conglomerates.

The ascent of activist investors demanding changes to corporate governance and improvements to corporate valuation is another reason for the growth of management disputes.

Yet management feuds and hostile takeover bids are expected to further increase in Asia’s fourth-largest economy amid growing demand for higher corporate valuation and governance restructuring, said market experts.

CONFLICTS AMONG FAMILIES, FOUNDERS AND SHAREHOLDERS

Korea Zinc Inc., the world’s No. 1 zinc and lead smelter, is embroiled in a fierce battle over its management control between its current Chair Choi Yun-birm and a consortium of Young Poong Corp. and MBK Partners, a North Asia-focused PE firm.

The founding family members of Hanmi Science Co. have been fighting over the company’s control since the death of the company’s late founder Lim Sung-ki in 2020, while the largest shareholders and former executives and founders of Seoul-based financial data provider FnGuide Inc. and entertainment production company Raemongraein Co. are in a tug of war over management.

Flashlight Capital Partners, a Singapore-based activist fund, has been demanding that KT&G Corp., the world’s fifth-largest tobacco market, spin off the latter’s ginseng unit, an offer that the Korean tobacco firm rejected last year.

MORE CONFLICTS EXPECTED

The investment banking industry expects more conglomerates in Korea to face similar management feuds, citing the weakening grip of their largest stakeholders.

According to an analysis by Market Insight, The Korea Economic Daily’s capital market news outlet, as of Sunday, of the 479 listed Korean companies with a market capitalization of 300 billion won ($221.3 million) each, the holdings of 212 firms’ largest stakeholders fall short of 33%.

In general, if the largest shareholder and related special members hold less than a third of the total stake, they are vulnerable hostile takeover targets.

The potential candidates for hostile takeover bids in the near future include traditional conglomerates Kumho Petrochemical Co., Hanjin KAL Corp. and Hansol Chemical Co.; game developers NCSoft Corp., Krafton Inc. and Netmarble Corp.; and biotech companies such as Hanmi Science, HLB Co. and Kwangdong Pharmaceutical Co.

The investment banking industry also sees a high potential for owner-family members’ conflicts over management at DB HiTek Co. and the revival of No. 2 stakeholder Schindler Holding AG’s attempt to take over Hyundai Elevator Co.

Cash-rich companies that have attractive valuations but are tightly controlled by shareholders are expected to be easy targets of hostile bids, said NH Investment & Securities Co.’s research team.

PEFS WIELD GREATER POWER

The greater power of Korean PEFs poses a particular threat to Korean conglomerates’ management control, said market analysts.

In the Korean PEF market, the number of PEFs managing a fund with over 1 trillion won in assets has grown to 35.

That means hostile bids could emerge as a new source of revenue for Korean PEFs competing fiercely over traditional buyout bids for unlisted firms.

If MBK wins the battle against Korea Zinc, other PEFs are expected to follow suit, said an official from the Korean PEF industry.

Write to Jun-Ho Cha, Jong-Kwan Park and Ji-Eun Ha at chacha@hankyung.com
Sookyung Seo edited this article.