Authority to probe front running allegations involving Hankook & Company

Hankook & Company’s headquarters [Photo by MK DB]

South Korean financial authorities plan to look into front running allegations associated with the latest tender offer launched by private equity firm MBK Partners Ltd. to secure control of Hankook & Company Co.

Suspicions rise that some forces obtained knowledge of the tender offer plan before the announcement and purchased shares in bulk.

“We need to look into the possibilities of suspected forward trading,” said a senior official from the Financial Supervisory Service (FSS) on Wednesday.

The FSS also plans to examine the legitimacy of Hy Co.’s stake purchase in Hankook & Company worth about 5 billion won ($3.8 million) on Tuesday, analyzing the purchase method and motivation to determine if there was any intention to drive up the stock price.

On Tuesday, MBK Partners announced that it is launching a tender offer for Hankook & Company shares at 20,000 won per share until December 24.

The offered price is 19 percent higher than the closing price of 16,820 won on Monday, a day before the announcement.

MBK Partners has plans to purchase a minimum of 20.35 percent and a maximum of 27.32 percent stake in the company.

If the private equity firm is successful in its tender offer, it will hold between 50 percent and 57 percent of the total outstanding shares of Hankook & Company, excluding treasury shares.

The trading volume of Hankook & Company shares, however, has already increased significantly since November 27, even before the tender offer announcement.

During the period, the trading volume increased at every transaction at a higher price, and the stock jumped 23.7 percent until Monday.

The trading volume, which was 98,000 shares on November 24, surged to 574,000 shares on November 27, 450,000 shares on November 30, and 595,000 shares on Monday.

The industry believes that some parties who knew in advance that the tender offer price would be set at 20,000 won, much higher than 14,000 won at the time, placed orders to acquire shares.

The FSS will investigate from which accounts the purchased shares came and if there were any issues in the process.