Homeplus Bankruptcy MBK’s Brutal Downfall

● KOSPI-Skyrocket, Law-Revision

Korean Corporate Governance and Shareholder Value Protection – Appointing Honest Management is Key to Corporate Growth

1. Issues of Management Appointment and the Role of Directors

Competent management and directors are crucial for the company’s growth and maximizing shareholder value.
However, in reality, controlling shareholders often appoint individuals who are favorable to them.
In this structure, truly diligent and honest talent is not properly selected, leading to a decline in the company’s core competitiveness.
In particular, the problem of management privately benefiting instead of coexisting with shareholders and harming shareholder value is prominent.
It is also emphasized that without strict protection of directors’ fiduciary duties to shareholders by common law, as in the United States, it is difficult to resolve these injustices.

2. Value-Up and Value-Down – The Two Sides of Corporate Growth

The Value-Up program should link management compensation with shareholder profits and clearly define KPIs based on growth strategies.
However, many companies currently focus on sales-oriented evaluations, which are not linked to actual operating profit or stock price increases.
This often leads to management focusing on short-term profits or diverting shareholder funds.
If value-down, i.e., the destruction of shareholder value, is not fundamentally blocked, external investors and general minority shareholders will suffer significant losses.
Therefore, institutional and structural improvements are needed within the company to ensure that honest and competent individuals can rise to management positions.

3. Comparison of Domestic and International Governance and Case Analysis

Korea adopts the American-style board authority structure, giving the board of directors full power over capital transactions.
As a result, shareholder control during processes such as treasury stock purchases, rights offerings, and M&A is insufficient.
On the other hand, the United States and Europe have strong prior controls and shareholder protection mechanisms, holding management strictly accountable when they harm shareholder value.
Although there have been attempts to improve governance in companies like KT, the influence of controlling shareholders remains strong.
The case of Meritz Financial Group is a good example of establishing long-term competitiveness and a stable growth model by separating ownership and management and establishing an internal control system.

4. Institutional Improvement and Future Tasks

Introducing the board’s fiduciary duty to shareholders and amending laws to protect minority shareholders are key tasks for improving Korean corporate governance.
Ongoing discussions on amending the Commercial Act emphasize the appointment of honest management, sufficient capital allocation, and transparent accounting practices.
It is necessary to introduce American-style ex-post control mechanisms to strengthen the accountability of management.
Ultimately, building a system based on trust between shareholders and management is essential to maintain the company’s intrinsic competitiveness and promote long-term growth.
If these improvements are made, the entire Korean corporate market will be positively evaluated, and global economic competitiveness will also improve simultaneously.

Summary

The current state of Korean corporate governance is seriously highlighted by the issues of shareholder value protection and the appointment of honest management.
Competent talent must be appointed, but the management’s fiduciary duty is weakened due to controlling shareholders’ pursuit of private interests.
Despite the introduction of the Value-Up program, KPIs and compensation are linked to sales, making it difficult to improve true operating profit.
Unlike the strict governance models of the United States and Europe, Korea has an overly strong board authority, making it vulnerable to shareholder protection.
Protecting minority shareholders through legal amendments and institutional improvements, and appointing honest and competent talent are key points for increasing corporate value and enhancing global economic competitiveness.

Key SEO Keywords: Economy, Governance, Management, Shareholder, Value.

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● Cafe Closures – Recession’s First Victim

This article encompasses various economic issues, from coffee consumption habits and rising global coffee bean prices to the café startup boom and the resulting fierce competition leading to closures.

This analysis delves into the coffee consumption and import trends, the factors behind rising coffee bean prices, the competitive landscape and polarization of the café market, and the trends in the food service and self-employment sectors concerning startups and closures, all examined chronologically.

Each point is supported by relevant data, alongside an explanation of the government and policy responses and future economic developments.

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[1] Coffee Consumption Habits and Market Trends
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① Increase in Domestic Coffee Consumption

South Korea consumes approximately 350 cups per person annually, significantly exceeding the world average of 132 cups.
The title 'Republic of Coffee' is fitting, especially given the strong coffee consumption habits among those in their 40s and 50s.

② Consumer Preferences and the Premium Coffee Trend

Demand for high-end specialty coffee is steadily increasing.
Consumers are increasingly interested in taste and quality, not just caffeine.

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[2] Coffee Imports and Rising Bean Prices
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① Discrepancy Between Import Volume and Value

From 2020 to 2023, while coffee import volume increased, import value rose at a much greater rate.
This is a result of rising coffee bean prices and reduced yields in major producing regions due to extreme weather conditions (floods, droughts, etc.).

② Increasing Global Demand and Supply Constraints

Coffee demand continues to rise due to the expanding middle class in emerging countries such as India and Indonesia.
Supply is constrained by extreme weather and farm damage, increasing upward pressure on prices.

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[3] Café Startup Boom and Intensified Competition
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① Startup Boom and Closure Rate

In recent years, there has been a surge in coffee shop startups, leading to intense competition.
In this over-saturated market, cafés in the same neighborhood share sales, reducing individual revenues.

② Double Burden of Fixed and Variable Costs

Profitability is deteriorating as variable costs, such as coffee beans, electricity, gas, and labor, rise while fixed costs remain the same.
This leads to an increasing rate of closures after startups.

③ Analysis of Startup Trends by Generation

Those in their 70s and other generations nearing retirement are entering self-employment involuntarily, flocking to the food service industry, particularly cafés.
Preparation for starting a business takes an average of six years, with café startups being the most popular choice within the food service sector.

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[4] Economic Recession and Changing Consumption Patterns
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① Weakened Domestic Market and Decreased Consumption

As the domestic economy weakens, there is a clear shift between consumption of essential and luxury goods.
Consumption related to dining out and leisure has declined sharply, with café consumption being among the first to decrease.

② Economic Pressure and Self-Employment Choice

In the South Korean economy, which lacks sufficient job creation, many people are turning to self-employment (self-hiring).
Coffee startups can be seen as a product of this structural choice.

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[5] Future Outlook and the Need for Policy Response
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① Forecast of Worsening Startup-Closure Imbalance

In the short term, startups and closures may occur simultaneously, but the closure rate is likely to increase after 2025.
In the long term, the stability of café startups may further deteriorate with changes in the retiring generation.

② Role of Government and Policymakers

Structural responses and policy measures are needed to prevent the repeated cycle of startups and closures among middle-class self-employed individuals.
This will help create countermeasures for vulnerable groups and a virtuous cycle in the overall economy.

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Other Matters

Includes news about free special lectures and offline club operations.
Provides useful information for those interested in startups, with schedules and participation guidelines for various special lectures.
Shares economic information and startup response strategies through various communication channels in addition to the YouTube channel.

< Summary >
This is the latest economic analysis including key keywords such as economic outlook, coffee market, startup trends, consumption patterns, and coffee bean prices.
Domestic coffee consumption is significantly higher than the world average, and supply constraints of coffee beans due to extreme weather are driving up prices.
The café market has fallen into over-saturated competition due to the startup boom, and the closure rate is increasing due to the burden of fixed costs and rising variable costs.
As the domestic economy weakens, consumption patterns are also changing, widening the gap between consumption of essential and luxury goods.
This is a time when structural responses from the government and policymakers are needed, and the closure rate is expected to accelerate further after 2025.

Global Coffee Market and Startup Trend Forecast

Coffee Consumption and Import Trends

Domestic coffee consumption is significantly higher than the world average.
350 cups are consumed annually, with strong consumption habits among those in their 40s and 50s.
Coffee bean import value has increased at a greater rate due to rising prices.

Background of Rising Coffee Bean Prices

Supply is decreasing due to extreme weather and farm damage, while demand continues to increase.
Demand for gourmet foods from the middle class in emerging countries such as India and Indonesia is the cause.

Café Startup Boom and Competitive Situation

Café startups are rapidly increasing, intensifying over-saturated competition.
Fixed costs remain the same, while variable costs are rising, deteriorating profitability.
There is a structural problem in which the closure rate increases after self-employment startups.

Economic Recession and Changing Consumption Patterns

Consumption of dining out and luxury goods is decreasing first due to the weakened domestic economy.
The gap between consumption of essential goods and luxury goods is becoming clearer.

Future Outlook and the Need for Policy Response

The closure rate is expected to accelerate after 2025, and the government urgently needs to prepare structural countermeasures.
Key keywords include economic outlook, coffee market, startup trends, consumption patterns, and coffee bean prices.

[Related Articles…]
Summary of Coffee Market Trends
Startup Trend Analysis

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● Homeplus, MBK, Bankruptcy-Private Equity Fallout

Analysis of Homeplus Receivership & MBK Private Equity Fund Investment Structure – Uncovering the Truth Amidst the Latest Financial Market and Economic Crisis

Revisiting the 2015 MBK Acquisition and the History of Homeplus

At the time of Homeplus's acquisition by MBK Partners, the acquisition consideration of KRW 7.2 trillion was raised through financial leverage.
The acquisition marked a turning point for Homeplus in the Korean retail market, starting with partnerships with Tesco and the retail division of Samsung C&T.
The goal at the time was to recover the investment through restructuring and asset divestiture, but the result was evaluated as "Homeplus Minus" rather than "Homeplus Plus."

Acquisition Finance, Leverage Structure, and the Concept of Blind Funds

The acquisition financing method used by MBK Partners was conducted by receiving a loan of KRW 5 trillion from multiple financial institutions, such as syndicated loans.
In addition, it was managed based on the trust of investors by utilizing a blind fund along with approximately KRW 2 trillion of pure equity investment.
This leveraged LBO (leveraged buyout) method enabled large-scale investments with small equity capital, but it entailed risks along with subsequent debt repayment issues.

Recent Homeplus Receivership Application and Bank Run Concerns

Recently, Homeplus has applied for court receivership (corporate rehabilitation) due to annual operating losses of hundreds of billions of won and financial debts of approximately KRW 2 trillion.
The court's rapid approval (in just 11 hours) reduced the short-term financial burden, prioritizing the payment of employee salaries and partner company payments.
The "Homeplrun" phenomenon that Homeplus is undergoing is similar to a bank run, and attention is being paid to the possibility that consumers and partner companies are acting on a desire to quickly recover their assets.

Online Transition and Future Retail Market Change Forecasts

After receivership, Homeplus continues to restructure its business model into a logistics and quick delivery system centered on online, with its strengths in offline stores.
At the same time, rumors of sales and mergers of Chinese capital such as AliExpress and Temu continue to be raised, which is expected to further complicate the competitive landscape of the domestic retail market in the future.
Economic crisis and financial market uncertainty within the market are expected to act as important variables in introducing new business models through online and offline integration.

Problems and Accountability of MBK Partners and Private Equity Fund Investment Structures

MBK Partners is a private equity fund invested through a blind fund, and unlike general corporations, the division of responsibilities between investors (LPs) and management companies (GPs) is clearly divided.
As a result, the management rights and accountability for investment assets such as Homeplus become opaque, and concerns about investment losses of LPs and damages to partner companies continue to arise in the future.
As public funds such as the National Pension Service are involved, it is time to check and monitor the investment structure of private equity funds socially, along with the impact on the overall economy.

The large-scale LBO investment structure and acquisition financing method that began with MBK Partners’ acquisition of Homeplus in 2015, and the operating form of blind funds, have led to several risks to date.
Recently, Homeplus has entered receivership due to continuous operating deficits and debt burdens, and bank-run-style consumer and partner company reactions are of concern.
Meanwhile, the domestic retail market landscape is shaking once again due to online transition attempts and Chinese capital sale rumors.
The opacity and accountability issues of MBK private equity fund investment structures are analyzed to have a significant impact on the economic crisis and financial markets in the future.
Key words: Homeplus, MBK, private equity fund, economic crisis, financial market.

[Related Articles…]
Homeplus Crisis Analysis
MBK Investment Risks

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– 홈플러스에 MBK 재산을 내놓을까? 홈플러스 법정관리와 사모펀드 잔혹사. MBK 파트너스의 책임은 어디까지인가? / [야식잡썰 EP.206] / 이대호 기자