MBK Partners, South Korea’s largest private equity fund, is facing growing criticism for its involvement in high-profile management disputes, raising concerns over its investment strategies and their impact on long-term corporate stability.
The controversy surrounding MBK dates back to last year. In December of 2023, MBK Partners, a private equity fund, launched a tender offer for shares of Hankook & Company (Hankook Tire) amidst a management dispute between two brothers.
MBK teamed up with Cho Hyun-sik, an advisor and the older brother of CEO Cho Hyun-bum, to acquire shares priced at 16,000 won ($12.03) per share, offering $15.04 per share in an attempt to secure management control. However, this effort fell through after just two weeks.
This is because, at that time, CEO Cho held a significant 42% stake in the company, and for Cho Hyun-sik and MBK to gain control, they would have needed to invest up to $390.8 million within 20 days to acquire an additional 20% stake.
On the first day of the tender offer, the company’s stock surged to nearly $16.54, well above the offer price. However, when Honorary Chairman Cho Yang-rae purchased more than 4% of the stock in defense of the current management, the attempt ended prematurely.
During this period, confusion spread both within and outside Hankook & Company. While some investors profited from the stock’s brief surge of more than 30%, others suffered losses as the price eventually returned to its previous level. Despite achieving a record operating profit of $190.1 million last year, the company still struggled to shake off its reputation for having weak management control. In contrast, MBK faced minimal losses, as it had not made any actual stock purchases due to the failure of the tender offer.
After its failed attempt with Hankook Tire, MBK once again stirred controversy on Sept. 13 by entering a similar management dispute, this time with Korea Zinc, and launching yet another tender offer.
Industry insiders are raising concerns that MBK, the largest private equity fund in S. Korea, may be pursuing investment strategies that don’t fit its reputation, leading to unnecessary confusion and uncertainty.
After investing more than $7.5 billion in companies like D’Live, Nepa, and Homeplus, without substantial returns for several years, MBK seems to be targeting companies with weak shareholder control in order to generate quick profits.
Private equity funds like MBK are considered high-risk capital within Korea’s financial markets. The government permitted their establishment in 2004 to inject capital into promising companies and create jobs, particularly in response to foreign private equity funds aggressively acquiring domestic firms after the 1997 financial crisis.
Many private equity funds have been praised for their role in the healthy tension between companies and investors. By injecting capital and pushing for corporate restructuring, they’ve enhanced competitiveness. In many cases, they’ve influenced corporate policies as major shareholders.
However, with recent issues regarding Hankook Tire and Korea Zinc, there’s growing concern that private equity funds may be straying from their original purpose.
Both companies have been recognized for shareholder-friendly policies, such as increasing dividends, and for delivering strong performance. Yet, due to low shareholder stakes held by management, they became targets of hostile takeover attempts.
As more S. Korean companies are now transitioning to third- or fourth-generation family leadership, many worry that more cases like Korea Zinc may arise, as family ownership stakes diminish due to inheritance and tax burdens.
Park Nam-gyoo, a professor at Seoul National University, commented, “When private equity funds get involved in management disputes, it creates doubts about the long-term stability of the companies because they tend to focus on making quick profits.”
