Exclusive
New Owner of Korea Pizza Hut Taking Shape… Finalizing Terms of Sale Before Court Approval

[비즈한국] Prospects are rising that the normalization of management for Korea Pizza Hut, currently undergoing corporate rehabilitation, will gain momentum. Recently, Korea Pizza Hut identified its final intended acquirer through an M&A process and reported it to the court. Although there were widespread concerns that the sale could hit a snag due to the Supreme Court's ruling on the return of differential franchise fees, the situation has shifted as an acquisition candidate has been concretized.

Acquirer Virtually Decided… Only Court Approval Remaining

According to Bizhankook’s reporting, Korea Pizza Hut submitted an ‘Application for Approval to Confirm and Notify the Final Intended Acquirer in M&A’ to the Seoul Rehabilitation Court on January 28. Companies undergoing rehabilitation procedures must obtain court approval for major asset sales or changes in management control. This application represents the stage of identifying the party intended to take over management and requesting official approval from the court. The industry interprets the submission of these documents as a sign that acquisition negotiations have largely concluded and the 'new owner' of Pizza Hut has effectively been decided.

However, the process does not seem to have been entirely smooth. Korea Pizza Hut filed the application for approval on January 28, only to withdraw it the following day, January 29, and then resubmit the relevant documents again. Industry experts speculate that there were adjustments being made to detailed terms such as the acquisition price, funding structure, or the scope of debt succession.

The Rehabilitation Court previously approved a ‘Stalking Horse’ conditional investment agreement for Korea Pizza Hut’s M&A last December. The Stalking Horse method involves selecting a preferred bidder, signing a conditional contract, and then conducting a public competitive bidding process based on that contract to determine the final acquirer.

The lead manager for the sale, Samil PricewaterhouseCoopers, received Letters of Intent (LOI) and Non-Disclosure Agreements (NDA) by the end of last December. Following a preliminary due diligence period until January 15, the main bid was held on January 19. It is reported that Korea Pizza Hut’s final acquirer was identified during this process.

The industry believes that once the court approves the final intended acquirer, subsequent steps such as signing the Stock Purchase Agreement (SPA) and paying the balance will follow, accelerating the sale process. However, the confirmation of the final intended acquirer has not yet been approved.

Consent from Franchisees is the Biggest Variable for Rehabilitation Approval

On January 15, the Supreme Court issued a final ruling ordering Korea Pizza Hut to return 21.5 billion KRW in differential franchise fees collected from franchisees. The core issue in the lawsuit filed by approximately 90 franchisees against the headquarters was whether the company had collected these fees, which functioned as logistics margins, without prior agreement from the store owners. As the Supreme Court upheld the original ruling in favor of the plaintiffs, Korea Pizza Hut now faces a significant financial burden for the repayments.

Following the ruling, concerns were raised in the market that the sale of Korea Pizza Hut could face a setback. Analysts noted that the burden of damages, along with the potential for future litigation, could act as a significant risk factor in the acquisition negotiations. However, with the identification of an intended acquirer, experts suggest that these legal and financial risks have likely been partially reflected in the price or contractual terms.

Korea Pizza Hut applied for an extension to the deadline for submitting its rehabilitation plan on February 10, which the court accepted, extending the original February 13 deadline to March 13. Industry observers view this as a measure to finalize detailed negotiations with the acquirer and design a specific debt repayment plan based on the proceeds from the sale.

However, signing the main contract does not mean the rehabilitation process will end immediately. Subsequent procedures remain, including the preparation and submission of the rehabilitation plan, holding meetings of interested parties, and obtaining creditor consent. Once the acquirer is finalized and payment is completed, Korea Pizza Hut must submit a rehabilitation plan to the court detailing the debt repayment rate and schedule. To receive final court approval at the subsequent meeting of interested parties, consent must be obtained from at least 75% of secured creditors and 66.7% of rehabilitation creditors.

In particular, since the volume of claims generated by the differential franchise fee ruling is substantial, whether the franchisees consent will likely be the biggest variable in the approval of the rehabilitation plan. If major creditors do not agree to the proposed repayment rate, the approval of the rehabilitation plan could become difficult.

Regarding the confirmation of the final acquirer and future schedules, Korea Pizza Hut stated, “As the rehabilitation process is currently underway, it is difficult to officially disclose specific details.”