Mr. Pizza faces delisting from Kosdaq

MP Group headquarters in Seoul / Yonhap

Mr. Pizza founder Jung Woo-hyun

By Park Jae-hyuk

MP Group, which operates Korea's largest pizza franchise Mr. Pizza, will likely be expelled from the local bourse because of its snowballing losses and dubious accounting practices, according to securities analysts Tuesday.

A series of controversies involving MP Chairman Jung Woo-hyun, who was jailed for physically assaulting a company security guard, was also one of the reasons why the Korea Exchange's (KRX) corporate evaluation committee decided to delist company shares, they said. Mr. Pizza has been on the Kosdaq market since August 2009.

“We will call a meeting of the Kosdaq market committee within the next 15 business days to make the final decision,” the KRX said in a statement.

After the announcement, MP Group said it will explain why the evaluation committee's recent decision was wrong.

It also vowed to take all possible steps ahead of the forthcoming market committee meeting, to remain in the Kosdaq market.

However, the market committee will likely follow the evaluation committee's decision, given that the evaluation committee has maintained its initial stance on the franchiser.

Since July 2017 when Mr. Pizza founder Jung Woo-hyun, the largest shareholder of MP Group, was arrested for alleged embezzlement and malpractice, the KRX has reviewed the franchiser's eligibility to remain in the stock market, giving a year-long period for improvement.

During the period of examination, MP Group has gone all out for management normalization, paying its 50 billion won ($45 million) debts and carrying out a massive layoff.

The efforts, however, were not enough to improve its worsening profitability.

MP Group has suffered quarterly operating losses so far, since it turned a loss in 2015.

Moreover, Deloitte Anjin's rejection of issuing an auditor's opinion for MP Group's first-half earnings report is another unfavorable factor for the group, because a company can hardly remain in the stock market if its earnings report fails to get qualified.

Industry analysts say MP Group will face setbacks in business expansion if it is delisted.

The exodus of franchisees will also likely accelerate, because of expected damage to the brand equity and possible difficulties in marketing campaigns.

The KRX's recent decision has been therefore regarded as the declaration of the end of the heyday of Mr. Pizza which once took the top spot in the nation's pizza market, defeating foreign franchises, such as Pizza Hut and Domino's Pizza.

“If a company's owner repeatedly draws public criticism, the company's value must be depreciated in the capital market,” said Hwang Sei-woon, a researcher at the Korea Capital Market Institute. “Foreign investors, who carefully consider a company's morality, will especially avoid investing in such companies.”

Some analysts say the recent decision on MP Group will affect Kychon F&B's planned initial public offering.

The operator of Korea's largest fried chicken franchise Kyochon Chicken has been facing boycotts over violence that Chairman Kwon Won-gang's relative committed against employees.