MBK raises Hankook bid price, asks FSS to probe Cho's stock purchase

The sibling rivalry for control of Hankook & Company Co., the holding firm of South Korea’s largest tire maker Hankook Tire & Technology Co., took another turn on Friday as private equity firm MBK Partners Ltd. said it is raising its bid price for the parent company to secure management control.

The Seoul-based PEF also requested Korea’s financial regulator to investigate their father’s purchase of Hankook & Company shares.

MBK filed a request with the Financial Supervisory Service Friday morning, saying that Cho Yang-rai, honorary chairman of Hankook & Company, likely violated Korea’s Capital Market Act when he heavily purchased the company’s shares in the market, boosting the share price.

The PEF alleged that his actions were designed to intentionally boost Hankook & Company’s share price to obstruct the private equity firm’s bid to acquire management control of the tire maker’s parent. If confirmed, Cho’s move amounts to stock price manipulation, industry sources said.

Cho’s representatives denied the allegation, saying that MBK’s claims are “nonsense.”

Hankook & Company said through a public disclosure on Thursday that Cho Yang-rai bought 2.58 million shares of the company at an average price of 22,056 won apiece from Dec. 7 through Dec.14.

He spent 57 billion won ($44 million) to buy the shares amounting to a 2.72% stake in Hankook & Company.

Separately, hy Co., formerly Korea Yakult, recently purchased Hankook & Company shares amounting to a 1.5% stake. Industry officials view hy as one of Cho Yang-rai’s friendly shareholders.

ELDEST SON, JOINTLY WITH MBK, AIMS TO REMOVE CHAIRMAN

Last week, Cho Hyun-sik, the eldest son of Cho Yang-rai and advisor to Hankook & Company, said in a regulatory filing that he and MBK Partners would jointly buy the holding firm’s shares to gain management control and remove Cho Hyun-bum, his younger brother, from his post as group chairman.

MBK said it and Cho Hyun-sik are seeking to acquire a majority stake in Hankook & Company by purchasing its shares from investors in the market at 20,000 won apiece until Dec. 25.

Ventura Co., a special-purpose company created by MBK’s special situations fund MBKP SS, aims to buy Hankook & Company shares to own a stake between 20.35% and 27.32% by spending as much as 518.6 billion won, the filing showed.

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 control between 49.89% and 56.86% of the company.

Cho Hyun-bum, now chairman of the group, owns 42.03% of Hankook & Company as the company’s single largest shareholder. He received most of the shares from his father who designated him, the second son, as his successor and asked him to lead the tire maker in 2020.

BALANCE LIKELY TIPPED IN CHO HYUN-BUM’S FAVOR

Last week, shares of Hankook & Company surged by the daily limit of 30% to 21,850 won on the day of MBK’s bid announcement and largely stayed above the PEF’s proposed price of 20,000 won.

The stock, however, fell as much as 26.2% to 15,600 won on Friday after Cho Yang-rai publicly declared his support for Cho Hyun-bum.

The father, who remains out of public view amid speculation that he shows signs of dementia, said this Tuesday that he would use his wealth to buy Hankook & Company’s shares to defend Cho Hyun-bum, according to people familiar with the matter.

Analysts said the stock fell sharply on Friday as retail investors lost interest in the company, judging that the balance has tipped in the current chairman’s favor after his father’s share purchase.

On Thursday, Cho Hyun-bum said he is confident of thwarting MBK and his elder brother’s bid to acquire control of the parent company. “We’re fully prepared,” he said.

MBK HIKES BIDDING PRICE 20%

With the father’s share purchase, the combined shareholding of Chairman Cho Hyun-bum and his friendly shareholders has risen from 42.89% to 45.61%, industry officials said.

If an additional 4.39% stake is secured, Cho Hyun-bum and his associates will own more than a simple majority of the company, easily defending his chairmanship.

On Friday afternoon, MBK upped the ante by raising its bid price to 24,000 won apiece, up 20% from 20,000 won, a regulatory filing by Ventura showed.

Theoretically, Hankook & Company’s shareholding will be finalized on Dec. 28, the final stock trading day of the year. If both sides have secured enough shares to continue their battle for management control, they will put the case to a vote at the company's annual shareholders’ meeting in March.

Meanwhile, Hankook Tire’s labor union issued a statement on Monday, saying that it flatly opposes “any hostile M&A attempt.”

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

(Updated with Ventura’s public disclosure that it has raised its bid price to 24,000 won from 20,000 won)

Write to Jun-Ho Cha and Il-Gue Kim at chacha@hankyung.com

In-Soo Nam edited this article.