Scandal-ridden Namyang Dairy sale process halted

Namyang Dairy Chairman Hong Won-sik wipes away tears as he offers to resign from his position at the company's headquarters in Seoul on May 4. Korea Times file

Namyang Dairy didn't provide rational grounds: Hahn & Company

By Kim Jae-heun

Namyang Dairy Products looks like it does not want to be sold to Hahn & Company as it postponed a shareholders meeting abruptly last week.

The dairy firm originally planned to invite executives from the private equity fund (PEF) and hand over a 53.08 percent stake owned by Chairman Hong Won-sik and his family. Hahn & Company agreed to pay 310.7 billion won to acquire the shares and the two firms were to decide the payment date at the meeting.

However, the chairman delayed the meeting by six weeks to Sept. 14. It was a unilateral decision and Hong did not show his face at the meeting where the event's cancellation was decided.

Namyang Dairy said the two companies need more time to smooth out the stock purchase agreement, but the PEF said it is considering taking legal action.

“It is difficult to understand why the seller postponed the shareholders meeting given that the closing date of the transaction cannot exceed Aug. 31,” a Hahn & Company official said. “There was no mutual consent on the delay, and Namyang Dairy did not provide rational grounds for it.”

Behind Chairman Hong's failure to appear, some reports said he's been dissatisfied with the proposed acquisition price presented by Hahn & Company.

The 310 billion won price is high if only looking at the company's current stock price. However, Namyang Dairy's book value for tangible assets stood at 369.3 billion won at the end of the first quarter of this year. The dairy firm believes the sale price is too low, especially considering the actual price of its real estate holdings. Meanwhile, Namyang Dairy's stock price also soared after Hong announced he will resign as the chairman and sell his company in May.

If the deal founders, Namyang Dairy will have to pay Hahn & Company 10 percent of the 310 billion won amount. However, the PEF is likely to sue even if the dairy firm pays the cancellation charge.

Reports have claimed an unnamed buyer approached Namyang with a better price than Hahn & Company's offer.

However, it would be tough for Namyang Dairy to pursue a new deal with a new partner, due to a clause in the stock purchase agreement (SPA) that does not allow the dairy firm to hand over management rights to a third party. The deal has already received approval from the Fair Trade Commission, which mean the two firms were close to completion.

“Also, the penalty clause is not a device for the defaulter. It can be used when the other party wants to cancel the transaction. In this case, only Hahn & Company can revoke the contract with reasonable cause,” an investment bank official said.

Namyang Dairy was involved in a stock manipulation scandal in May after issuing a false report exaggerating the health effects of its Bulgaris yogurt drink.

The company was met with public condemnation and a provincial government sent a notification to the dairy firm of a two-month suspension of operations at its production line. Prosecutors also searched Namyang Dairy headquarters on April 30 as part of their investigation into the company's false report.

The chairman instantly offered to resign, taking full responsibility. He also promised he would not pass on management of the company to his children.

After the announcement, the company's stock skyrocketed by 24.1 percent, to reach 425,000 won during intra-day trading.

Prior to the chairman's resignation, CEO Lee Kwang-bum also stepped down from his position.