MBK Partners drew a line under its six-year ownership in South Korea’s biggest water purifier manufacturer on Monday. It has agreed to sell its remaining 22.17% stake in Coway to founders Woongjin Group and private equity firm STIC Investment for W1.68 trillion ($1.48 billion).
The Asia-focused private equity firm – led by Michael B Kim, the “Godfather of Asian private equity" – will sell its entire 1.64 million shares in Conway to Woongjin ThinkBig for W103,000 per share. This represents a premium of 22.8% to the stock’s Friday close and values the company at $6.7 billion.
The transaction value suggests that MBK Partners has doubled Coway’s value since it bought a 30.9% stake from Woongjin Group at W50,000 per share in 2012. The PE firm sold the other 8.7% stake separately through two block deals last year.
Monday’s agreement appears to be a win-win situation for both MBK and Woongjin.
The deal will be a relief to MBK. The PE firm failed to find a strategic buyer for the asset when it declared its intention to sell in 2015 and has had to hold on to its majority stake for three years longer than planned.
At the same time, the deal is something for Woongjin to cheer about. It is now able to take back the water purifier maker, then known as Woongjin Coway, it founded in 1989. Woongjin was forced to sell control in 2012 as the cash-strapped group needed to raise funds to repay debt.
The process, however, has not been a smooth one. Woongjin sued MBK last year and claimed that the PE firm had violated its right of first refusal when it sold part of its Coway stake to third parties during the block sale In May 2017. The lawsuit was rejected by a Korean court late last year.
For MBK, the investment in Coway has not been particularly lucrative as it generated an annualised return of only 12.25% – significantly lower than the fund’s 19.4% internal rate of return last year.
Worse still, public investors appear to have been disappointed by the transaction. There was a massive selloff in Coway shares which saw their price plunge by nearly 25% during Monday trading hours.
Equity analysts have raised concerns about Woongjin’s weak corporate goverance and its high debt load as well as Coway’s future profitability after losing a strong PE partner.
In any case, the transaction represents another private equity exit for a market that is known to be tough for PE investors. Surpassing Carlyle’s $1.2 billion sale of ADT Caps in May, MBK’s sale of Coway is the largest private equity deal out of South Korea so far this year.
Woongjin and STIC Investment have said that they intend to settle half of the payment in cash, and half with a credit facility from Korea Investment & Securities.
The deal should complete by March 15 next year.