Mom's Touch delisting feared to benefit large shareholders only

The owner of a Mom’s Touch franchise restaurant in Seoul holds a sign protesting the franchisor’s abusive management practices, Oct. 27, 2021. Korea Times file

By Lee Kyung-min

Criticism is mounting over the delisting of Mom’s Touch, a local fast-food franchisor. Market watchers are calling the move an irresponsible, rushed exit strategy pursued at the expense of retail shareholders, who are highly likely to incur considerable losses, if market prices set by the current tender offer fall short of their purchase prices.

Some say that the delisting from the tech-heavy Kosdaq market is a calculated move by KL & Partners, the private equity firm that operates F&B Holdings Korea, the largest shareholder of Mom’s Touch, with a 67.49 percent stake, to avoid accounting data disclosure responsibilities. The delisting legitimizes keeping small franchise owners out of the loop to evade due, equitable profit sharing.

Others view the delisting as a step toward preparing for a listing in a few years, once all shares of the firm are bought back, as an easy way to fundamentally remove any possibility of protests from smaller retail shareholders.

Whether retail shareholders will sell their shares within the timeframe set by the franchisor remains to be seen, since the current price volatility is highly likely to continue through next month, driven by large institutional investors seeking hefty short-term gains.

Mom’s Touch said on Jan. 20 that F&B Holdings Korea will purchase the franchisor’s shares at a price per share of 6,200 won ($5.20), 19.2 percent higher than 5,200 won, Jan. 19. Over 16 million shares, or 15.8 percent of the total, will be bought through Feb. 15.

The announcement pushed the share price up to 6,130 won on Jan. 20, up 18 percent from the previous session. The price climbed further the following day to an intraday high of 6,140. The spike over the course of two days was sustained mostly by institutional investors.

Mom’s Touch said that the delisting was inevitable, since listed firms are highly prone to negative issues, with corporate sales and profitability severely undermined in the process. “We decided to delist to minimize external intervention and better focus on the franchise business,” it said.

The statement reflects the firm’s frustration towards an ongoing, on-site investigation by the Fair Trade Commission into alleged antitrust violations, with broad scrutiny of the company’s overall management. It was prompted by the firm’s unilateral termination of its business contract with a small franchise operator that sought to form an association of franchisees to protest a spike in raw material prices.

Whether Mom’s Touch will follow in the footsteps of Tailim Paper, the corrugated cardboard manufacturer delisted in 2016, remains to be seen.

Tailim is seeking listing on the benchmark KOSPI, six years after it was blasted for its widely undervalued share price and high dividend payouts in the amount of 60 billion won, claimed exclusively by IMM Private Equity in 2018. The 60 billion won was far greater than the firm’s annual net income of 39.3 billion in 2018. Minority shareholders said they were essentially forced to sell their shares short, as a result of IMM’s abuse of the tender offer.