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THE INVESTOR
December 15, 2019
Big Reunion

Deals

Hahn & Co. CEO cleared of tax evasion allegations, but Lotte Card deal off

  • PUBLISHED :July 28, 2019 - 17:17
  • UPDATED :July 28, 2019 - 18:57
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The Seoul Central District Prosecutors’ Office has dismissed allegations that Hahn Sang-won, CEO of private equity firm Hahn & Co., had evaded taxes.

The decision, however, is unlikely to salvage the botched Lotte Card acquisition plan by Hahn & Co.

Hahn & Co. CEO Hahn Sang-won

Related:
Lotte to sell 79.8% stake in Lotte Card to MBK-Woori consortium
Seoul-based PEFs likely to acquire Lotte’s financial arms


In May, a new KT labor union and a civic group accused Hahn, who heads South Korea’s second-largest PEF by assets under management, of tax evasion in 2016.

The union claimed that he should have paid the gift tax when Hahn & Co. sold its entire stake in portfolio company N Search Marketing for 60 billion won ($50.7 million) to Korean telecom firm KT and its affiliate Nasmedia.

The union and the civic group also insisted that privately held N Search Marketing had been overvalued and its valuation should reduce to nearly one-fourth, citing a valuation guideline under the inheritance & gift tax law.

Hahn & Co. representatives have questioned the validity of their claims, raising doubts that any individual including CEO Hahn is subject to gift taxes for an M&A transaction between companies.

The PEF also said the deal was not overvalued, as their valuation was within the adequate range. According to a disclosure containing a business valuation by KPMG Samjong Accounting, the purchase price was within a range of between 54.5 billion won and 65.6 billion. Moreover, N Search Marketing was valued 7.8 times EBITDA multiple, which is lower than other comparable deals, Hahn & Co. said.

While the legal action appears to have been meant to zero in on KT chief Hwang Chang-gyu, who was also accused of breach of trust, the accusation effectively pulled Hahn & Co. out of its position as a preferred bidder for Lotte Card takeover in May.

Subsequently, Lotte later in May selected an MBK Partners-Woori Financial Group consortium as the most preferred bidder and secured its board’s approval.

A possible legal dispute by a third-party labor union appeared to have put pressure on Lotte.

The retail giant faced an impending need to sell off all financial units, including the credit financing unit Lotte Card, by November this year. Under the Korean rule, a nonfinancial business group is obliged to sell off its stake in financial units within two years since adopting a holding company structure. Failure to do so will lead to a jail term of up to three years and fines of up to 200 million won.

The prosecution’s dismissal indicates the labor union-led claim was groundless, a Hahn & Co. representative told The Investor.

By Son Ji-hyoung (consnow@heraldcorp.com)

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