Activist fund Tcha Partners calls for Namyang Dairy to buy back shares

Seoul-based activist fund Tcha Partners Asset Management Co. on Monday demanded that South Korea’s Namyang Dairy Products Co. buy back half of the shares owned by its retail investors, which equals 23.5% ownership of the company, at 820,000 won ($620.3) apiece via a tender bid. 

That price is 35% higher than the share's closing price on Feb. 24. The repurchase would reach 191.6 billion won in aggregate, comprised of 123.3 billion won in common stocks and 68.3 billion won in preferred shares.

Tcha Partners, which holds a 3% stake or 20,447 shares in the dairy products maker, has determined to begin shareholder activism on Monday as Namyang hasn’t responded to the asset manager’s letter sent on Feb. 15.

The asset manager's letter contained four proposals. The first one is that Namyang would repurchase half of the common and preferred stocks owned by retail investors to share the control premium with minority shareholders. 

Namyang Chairman Hong Won-sik and his two family members agreed to sell a combined 53.08% stake in the dairy products maker to Korean private equity firm Hahn & Co. for 310.7 billion won in 2021, slightly less than twice its market value at the time. But Namyang’s retail investors were excluded from the control premium distribution.   

Namyang stock, which surged to 813,000 won in July 2021 after Hahn & Co. announced the acquisition plan, has plunged as Chairman Hong annnounced a termination of the Hahn & Co. deal in September of the same year. Hong argued the contract was unfair and one-sided in favor of the buyer, adding that he had not even received a down payment. 

In addition to the buyback, Tcha Partners proposed that Namyang appoint Sim Hye-seop, a lawyer specializing in corporate governance, as an auditor; conduct a five-for-one stock split through changes in the articles of association; and distribute a 20,050 won dividend per preferred stock.

FIGHT FOR RETAIL SHAREHOLDERS' RIGHTS

Namyang stakeholders are set to vote on resolutions at the general shareholders' meeting in March. The retail investors’ votes will be decisive in nominating the auditor as Hong and his two family members, who together have a controlling stake, can execute up to 3% of shareholder voting rights under Korea’s Commercial Act.

Tcha Partners also needs Chairman Hong and his family’s agreement to pass the other resolutions.

Hahn & Co. won the first legal battle against Hong last September and the second one earlier this month. The Seoul Central District Court has ordered Hong to carry out the transaction as previously agreed. 

Namyang, previously a longtime leader in Korea’s dairy industry, has faced a series of corporate-level crises since 2013 when it was revealed that the company’s salespeople were forcing distributors to buy more of their products.

In 2021, the company faced blowback for its claim that its yogurt drink Bulgaris can protect against COVID-19. Following public backlash Hong pledged he would resign as chairman; but he has maintained the position.

“The dairy products maker’s earnings have deteriorated while the legal batles have been prolonged. We will focus on enhancing retail shareholders’ rights, which have been underestimated,” Tcha Partners said.

“Namyang’s shareholders were excluded in the recent M&A event —  at a time when the Korean government is contemplating introducing a mandatory offer rule that many developed capital markets are already practicing,” said Tcha Partners Director Kim Hyung-kyoon.

“During this transition period, we hope to secure an opportunity for Namyang's minority shareholders to realize an M&A equivalent exit opportunity,” Kim added.

Founded in 2019, Tcha Partners is an alternative investment firm with expertise in infrastructure. Its founding members are from Platform Partners Asset Management, a local activist fund that led Macquarie Korea Infrastructure Fund’s management fee cut in 2018.

Namyang shares dropped 5.57% to close at 576,000 won on the Kospi on Monday.

*Updated with comments from Kim Hyung-kyoon

Write to Ji-Eun Ha at hazzys@hankyung.com

Jihyun Kim edited this article.