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Namyang ex-chair's no-show for $300 mn deal: What's next

Namyang postpones the deal closing to Sept. 14, while girding for legal battles with Hahn & Co.

By Aug 23, 2021 (Gmt+09:00)

Namyang Dairy's popular yogurt drink Bulgaris on the shelves of a supermarket
Namyang Dairy's popular yogurt drink Bulgaris on the shelves of a supermarket

Hong Won-sik, ex-chairman of South Korea’s Namyang Dairy Products Co., appeared to have changed his mind shortly after signing a 310.7 billion won ($263 million) agreement with Hahn & Co. to sell a majority stake in his scandal-hit company.

Since the announcement of the stake sale in late May, shares in the milk and yogurt drinks producer have soared over 80% to hit its four-year high of 810,000 won on July 1. That was close to the 813,000 won at which Hong and his two family members agreed to dispose of their shares apiece in the 57-year-old dairy products maker.

The transaction was supposed to be approved at Namyang's extraordinary shareholder meeting on July 30. But Hong did not turn up without prior notice and the company abruptly postponed the shareholder meeting to Sept. 14.

Namyang said it needed more time to prepare for the deal closing, which Hahn & Co. claimed was a unilateral decision made without mutual consent.

In the meantime, Hong began preparations for a possible collapse of the deal.

“Around early July, Chairman Hong came to us and asked whether we could represent him in litigation to revoke the agreement,” a lawyer told The Korea Economic Daily, asking not to be named.

“After reviewing the offer, we decided not to take the case.”

Hong finally appointed LKB & Partners as his legal counsel. The Seoul-based law firm confirmed on Aug. 19 that it has decided to represent the former Namyang Dairy chairman in legal cases. LKB has made its name on handling politically sensitive cases involving high-ranking government officials.

In response to the unprecedented no-show for a domestic M&A transaction and the sellers’ abrupt postponement of the deal closing, Hahn & Co. criticized it as incomprehensible and an obvious violation of their agreement. It vowed to take legal action against Hong, if needed. 

However, the PEF is now putting its efforts into persuading Hong to fulfill his agreement, according to sources with knowledge of the matter.

Hong denied market speculation that the delay might mean the contract will be terminated. In a letter sent to a local media outlet on Aug. 17, Hong said he remained dedicated to the transaction with Hahn & Co. But industry sources doubt whether he will keep his word.


According to legal industry sources, Hong had reached out to about 10 law firms to prepare against a legal dispute with Hahn & Co., expressing his frustration about selling his company at cheap.

Another lawyer said that it would be difficult for law firms to side with Hong, taking into account their future relationships with Hahn & Co., one of the country's top private equity firms and other domestic PEFs.

Private equity industry sources share the view that revoking an agreement that has been already signed is unreasonable.

But they are sympathetic to Hong’s argument that his company was priced too low. They cited Namyang's healthy financial structure and solid businesses which have been tarnished by a series of the company's blunders.

In April this year, the company claimed its popular yogurt drink Bulgaris was effective in preventing COVID-19 infections. That sparked an immediate backlash from the government and consumers, leading to nationwide boycotts of its products.

The scandal forced Hong to step down from his position as chairman in early May and to pledge not to pass on the company's management to his children. 
Hong Won-sik, ex-chairman of Namyang Dairy, announced his resignation on May 4
Hong Won-sik, ex-chairman of Namyang Dairy, announced his resignation on May 4
The price of 310.7 billion won for a 53.08% stake represented an 85% premium to its market value on May 27 when the deal was announced. 

Private equity and food industry sources said, however, that the price tag is too low, considering its brand awareness and market leading position of around 60 years. Namyang had maintained its top position in the country's powdered milk segment until 2020 when the continued boycott allowed Maeil Diaries Co. to overtake it.

Moreover, the combined value of Namyang’s cash and cashable assets stood at 389 billion won as of the end of March this year, above the price of the 53.08% stake. The PE sources said Namyang’s corporate value will likely improve quickly if it sheds loss-making businesses such as the instant coffee division.

The sale price equates to four times its projected earnings before interest, tax, depreciation and amortization (EBITDA), below the average EBITDA multiple of 8 to 10 applied to M&A transactions for domestic manufacturing companies.

Back in 2018, Hahn exited Woongin Foods Co., a South Korean beverage producer, at the EBITDA multiple of 12-13, or twice its purchase price in five years. The Seoul-based PEF had made bolt-on acquisitions of domestic beverage and food companies to boost Woongjin's value before the divestment.

Namyang Dairy's Assets as of the end of March, 2021:

Asset Type Value
Cash and cashable assets 152 billion won
Lease liabilities 34 billion won
Net cashable assets 118 billion won
1964 Building in Seoul (16,529 square meters)  about 150 billion won
(estimated market value)
Factories and distribution centers in South Korea 121 billion won
(officially assessed value)
Total 389 billion won

Hong blamed Kim & Chang, the legal advisor for the stake sale, for valuing his company even lower than its intrinsic value and argued that the country's largest law firm had worked in Hahn & Co.’s favor. Kim & Chang worked for both sides on the transaction.

But Kim & Chang refuted the claim, saying that their lawyers strictly kept confidential the terms of the agreement to the other side of the negotiating table. One of its lawyers advising on Hong said that they had not been informed of the selling price until Hong told them to put the number into the contract.


Now the M&A industry’s focus is on whether Hahn & Co will be able to push ahead with the acquisition.

Hahn & Co. seems to be in an advantageous position if it enters a legal dispute with Namyang, because the transaction was already cleared by the antitrust Fair Trade Commission. Further, given that the PEF has prepared funds to make the payment, the deal could be seen as remaining alive.

In their contract was a clause contained that prohibits one side from scrapping the deal on the condition of paying a penalty. That means Hahn & Co. may be allowed to move ahead with the deal which, however, might be brought all the way to the Supreme Court, lawyers said.

To enter prolonged legal battles, Hahn & Co. needs to convince its limited partners of the need for the legal action which would cost additional money and take it longer to retrieve their investment. That could hamper its next fundraising efforts and hurt its reputation in the M&A market as well.

“For M&A deals, unlike real estate transactions, a contract cannot be revoked just by returning the down payment and paying indemnities,” said one of the M&A industry sources. “Eventually, things will go in favor of Hahn & Co. But time is not on PEFs’ side.”

In addition, there could be disputable matters related to the details of their contract, according to legal experts.

One instance was Hanwha Group’s withdrawal in 2008 from the agreement to buy Daewoo Shipbuilding & Marine Engineering Co. from the state-run Korea Development Bank. After nine-year legal battles, Hanwha succeeded in taking back more than half of the deposit of 315 billion won it had paid for the aborted acquisition.

In the case of Mirae Asset Group’s cancellation in 2020 of a $5.8 billion deal to buy 15 luxury hotels in the US from China’s Anbang Insurance, a US court last year ruled in favor of Mirae, saying Anbang failed to abide by specific terms of the contract.

In the first trial, the court in Delaware ordered Anbang to return the $581 million deposit Mirae Asset paid for the transaction and pay an additional $4 million to cover the Korean firm's legal fees.

Meanwhile, Stone Forest Capital LLC, a US hedge fund with an unidentified stake in Namyang Dairy, urged ex-Chairman Hong to carry out the sale transaction with Hahn & Co.

Its Chief Investment Officer Brad Lindenbaum said in an email note on Aug. 19 that his company was considering various measures, including legal action, to protect shareholders' interests, if Hong and his two family members failed to fulfill the agreement.

Namyang Dairy's saga since the start of 2021:

Apr. 13 Namyang Dairy held a symposium where it said its research found Bulgaris to be effective in preventing COVID-19 infections.

Apr. 15 The Ministry of Food and Drug Safety reported Namyang Dairy to the police for allegedly exaggerated advertisements.

Apr. 30 Seoul police station raided Namyang headquarters and its research centers.

Apr.16 Sejong City ordered a two-month suspension of Namyang’s flagship plant in Sejong, which produces about 40% of its dairy products.

May 4 Hong Won-sik resigned from his position as chairman and vowed not to pass on the company's management to his children.

May 27 Namyang agreed to sell a 53.08% stake in the company held by ex-Chairman Hong and his two family members to Hahn & Co. for 310.7 billion won.

July 1 Shares in Namyang surged to 810,000 won in intraday trade.

July 6 Sejong City imposed a fine of 828 million won and a correction order on Namyang in relation to its exaggerated advertisements, on condition of avoiding a two-month suspension of its factory in Sejong.

July 30 Namyang canceled an extraordinary shareholder meeting and postponed the gathering to Sept. 14.

Aug. 17 Hong said in a letter to a local media outlet that he remained dedicated to the transaction with Hahn & Co.

Aug. 19 LKB & Partners confirmed that it has decided to represent ex-Chairman Hong in legal cases.

Write to Jun-ho Cha and Ji-hye Min at

Yeonhee Kim edited this article.

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