[BizHanKook] The conflict between Golfzon Holdings and MBK Partners is intensifying. Golfzon Holdings is pushing back against MBK Partners' decision to pursue the sale of its stake in Golfzon County. Currently, MBK Partners is the largest shareholder of Golfzon County, while Golfzon Holdings is the second-largest. Golfzon Holdings claims that MBK Partners promised to guarantee their management rights and that the stake sale constitutes a breach of contract.
Conflict Flares After Sale of Golfzon County Initiated
MBK Partners became the second-largest shareholder behind Golfzon Holdings after investing 114 billion KRW during a paid-in capital increase by Golfzon County in 2018. It later acquired additional shares to become the current largest shareholder. According to audit reports, as of the end of last year, MBK Partners held a 58.37% stake in Golfzon County (including 3.54% in preferred shares), while Golfzon Holdings held 41.63%. Golfzon County, a corporation operating 20 golf courses nationwide, recorded 285.2 billion KRW in revenue and 81.1 billion KRW in operating profit last year.
However, when MBK Partners recently moved to sell its stake to the The Siena Group consortium, Golfzon Holdings protested, claiming it was a breach of contract. On October 28, Golfzon Holdings stated, "We accepted MBK Partners’ investment under the premise that they would successfully complete the initial public offering (IPO) of Golfzon County and guarantee Golfzon Holdings' management rights during the future capital recovery process." They further argued, "MBK Partners is pushing for a sale while ignoring our continuous demands for an IPO and our objections regarding unfair conditions in the golf course lease agreements."
In response, MBK Partners countered, "The guarantee of management rights was a conditional structure contingent upon a successful IPO. The two parties clearly defined a 'Drag-along' clause, which grants MBK Partners the right to sell the management rights to a third party by bundling Golfzon Holdings' stake in the event that the IPO fails." They added, "While we guaranteed Golfzon Holdings a 'Right of First Offer' (ROFO) to acquire Golfzon County, they provided only empty replies expressing a hope for an IPO without making any actual proposals."
- Drag-along
- A right that allows a majority shareholder to force minority shareholders to join in the sale of a company to a third party under the same terms and conditions.
Golfzon Holdings issued a rebuttal. "MBK Partners agreed to sign a stock purchase agreement on October 26, but unilaterally notified us of their refusal to sign at around 5:00 PM on Sunday, October 25—the day before the signing—and then signed a stock purchase agreement with The Siena Group three days later on October 28," they pointed out. "MBK Partners discarded their promises to Golfzon Holdings, who had been waiting in preparation for the deal, and signed a contract with another company."
With neither side backing down, both are signaling potential legal action. The key issue is expected to be to what extent Golfzon Holdings accepted MBK Partners' ROFO. If Golfzon Holdings showed no intention of acquiring the stake, MBK Partners would face no issues in selling it to The Siena Group. However, Golfzon Holdings maintains that MBK Partners unilaterally canceled the deal while negotiations were still underway. In short, they argue that because they had an interest in the acquisition and were in the midst of negotiations, the unilateral termination is a breach of contract.
Regardless of who is right, legal proceedings could disrupt MBK Partners' sale schedule. Even if MBK Partners wins, the legal battle could impact The Siena Group’s acquisition financing schedule and the timeline for utilizing the proceeds, potentially destabilizing the entire management plan.
Minority Shareholder Turton Capital Joins the Fray
Amidst this, Turton Capital, a U.S.-based activist investment firm and a minority shareholder of Golfzon Holdings, is drawing attention for stating that Golfzon Holdings should accept the sale of MBK Partners' stake in Golfzon County. Turton Capital publicly demanded that Golfzon Holdings: 1) accept the sale of Golfzon County (complete the sale via drag-along at the price and conditions set by MBK Partners); 2) conduct a tender offer for minority shares at a fair price; 3) pay out the proceeds from the Golfzon County sale as dividends; and 4) disclose details regarding the sale. Turton Capital requested a response by November 10, but Golfzon Holdings has not released an official statement as of that date.
Ryan Albert, CEO of Turton Capital, stated, "We have no interest in the dispute between Golfzon Holdings and MBK Partners, nor do we care who owns Golfzon County." However, he argued, "Korea is working to resolve the issue of 'Korea discount' caused by boards of directors acting only for specific shareholders. If companies treat all shareholders fairly, the cost of capital decreases, household savings and pension returns increase, and companies can invest more in wages and innovation."
Turton Capital is known to hold approximately 3% of Golfzon Holdings. While their stake is not large, rising criticism from minority shareholders is a burden for Golfzon Holdings. Furthermore, as Golfzon Holdings is pursuing a delisting, other minority shareholders are also viewing the company with skepticism. However, it is worth noting that MBK Partners also suffers from poor public sentiment in Korea following the Homeplus situation.
Since the dispute began, Golfzon Holdings' stock price has been rising. After hovering in the mid-7,000 KRW range in early October, it rose to 10,300 KRW on October 30. Recently, it has been trading in the high 8,000 KRW to low 9,000 KRW range.