Namyang Dairy Products, 15 Days Before the Vote Competition…A war of words with Cha Partners over the feasibility of treasury stock purchases.

Namyang Dairy

Namyang Dairy management and activist fund Cha Partners faced off over shareholder proposals. Claims were sharply divided over whether the “tender purchase using the purchase of own shares” proposed by Cha Partners was practically possible. Cha Partners announced an active response to persuade minority shareholders.

Is it possible to buy back shares?

Namyang Dairy Management announced a statement of opinion on Cha Partners’ recommendation to exercise voting rights on behalf of Cha Partners on the 14th. This is the first official position since the activist fund’s shareholder proposal. The statement of opinion was written by Kim Seung-eon, the management manager. He was scheduled to be appointed as a new director in 2021, but he was appointed as the manager by citing an injunction by Hahn & Company, which prohibits Chairman Hong Won-sik’s family from exercising voting rights at the general shareholders’ meeting.

Namyang Dairy Products refuted the agenda submitted by Cha Partners one by one. In particular, he argued that the demand for treasury stock acquisition is practically difficult due to the company’s financial conditions. It costs 191.6 billion won to acquire shares worth 820,000 won per share and 50% of minority shareholders’ shares as treasury stocks, which is an unreasonable demand for a company with an operating loss of more than 70 billion won every year. “The shareholder proposer does not consider the company’s management situation at all and focuses only on short-term profits in front of him,” he said, asking shareholders to “support the company instead of Cha Partners.”

Cha Partners immediately refuted. Cha Partners emphasized that the purpose is not to simply force minority shareholders to buy back their shares, but to ask them for the right to recover their investment and the “option.” “This bill was proposed as a combination of treasury stock purchases and mandatory tender purchases or alternative to mandatory tender purchases at a time when the mandatory tender purchase system is scheduled to be introduced this year,” said Kim Hyung-kyun, head of Cha Partners.

“If many shareholders think that stock prices will rise above 820,000 won per share by increasing shareholder value in the future, the subscription rate for treasury stock purchases may be very low, and depending on the results, the actual funds for tender purchases could be tens of billions of won,” Kim explained. Even if more than 50% of minority shareholders did not welcome the new management, they said that they should spend about 190 billion won as a result, non-core assets and working capital reached about 400 billion won, which is enough to implement the agenda.

It was also based on the fact that the tender price of 820,000 won per share falls far short of the intrinsic value of Namyang Dairy’s shares. The liquidation value of Namyang Dairy Products analyzed by Cha Partners was about 1.16 million won per share. Cha Partners’ logic is that the legal dispute between Chairman Hong and Han & Co implies that 820,000 won per share is cheaper than the intrinsic value, and that the value of the rest of the shareholders increases if they purchase treasury stocks at a lower price than the intrinsic value.

Namyang Dairy Products also drew a line by mentioning, “Many activist funds are making so-called ‘eat and run’ moves to sell and leave as soon as stock prices rise.” Cha Partners announced that it has no plans to sell Namyang Dairy Products shares for a short period of time. Unless Hahn & Co. acquires 100% of Namyang Dairy Products shares, minority shareholders will still exist, and they will continue to play a role in checking and monitoring through audits.

It plans to actively respond by distributing specific explanatory materials on the shareholder proposal agenda in the near future.

Where are the votes of minority shareholders?

At Namyang Dairy’s regular shareholders’ meeting on the 31st, minority shareholders’ votes are drawing particular attention.Although it is difficult to pass the treasury stock purchase agenda proposed by Cha Partners only with minority shareholders, the appointment of an auditor is likely to be passed as the majority shareholder’s stake is limited to 3%.

The National Pension Service held a 4.6% stake in Namyang Dairy until July 2020, but has sold additional shares since then, and it is understood that there are not many voting rights to exercise at the moment. Considering the foreign stake estimated at around 8% and the holdings of some institutions, including Cha Partners, which holds 3%, the stake held by minority shareholders is estimated to be around 35%.

Some observers say that Hahn & Co and Chairman Hong’s family will contact Cha Partners at the shareholders’ meeting to coordinate the agenda. In particular, the agenda for the appointment of auditors, which can be a burden to both Chairman Hong and Han & Co., is mentioned.

Namyang Dairy Products, 15 Days Before the Vote Competition…A

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