Korea Pizza Hut, which has entered the corporate rehabilitation process, will eventually start selling its brand goodwill.
According to the investment bank (IB) industry on the 27th, it has been confirmed that Pizza Hut Korea submitted an application to the Seoul Rehabilitation Court for the selection of M&A sales manager and permission to start the process.
The company's plan submitted to the court on the same day reportedly includes plans to pursue M&A, including the continuity of the Pizza Hut brand and franchise operations and the acquisition of third parties or transfer of goodwill to secure liquidity for bond repayment.
If the rehabilitation court permits the start of the selection process for a manager submitted by Pizza Hut Korea, it will take steps to sell the brand through procedures such as selecting a manager, receiving letters of intent to acquire, and bidding publicly.
On the same day, Pizza Hut Korea officially announced that it will begin the M&A process by sending CEO letters to more than 300 merchants and suppliers nationwide along with the submission of the permit application.
In an official letter under the name of Cho Yoon-sang, CEO of Pizza Hut Korea, the company said, "The rehabilitation process is normally carried out by the company's management in consultation with the court supervision, but it takes a lot of time and effort to reach the end of the rehabilitation process through submission, approval, and implementation of the rehabilitation plan, and it is true that both the franchise headquarters and the franchisees are having difficulty."
Earlier in September last year, Korea's Pizza Hut lost the second trial of a lawsuit filed by some franchisees for the return of unfair profits, the so-called "difference deposit."
When the company's account was seized along with a ruling to return 21 billion won, it applied to the Seoul Rehabilitation Court in November last year to initiate the corporate rehabilitation process. The rehabilitation plan must be submitted to the court by May 21.
Pizza Hut Korea seems to have chosen the most aggressive way to sell the company to a third party by attracting investors, including the sale of brand goodwill, to raise debt payments.
"Nothing has been decided yet regarding M&A, including the preferred bidder, and only the application for permission has been submitted," a Korean Pizza Hut official said. "Apart from the M&A process, the Korean Pizza Hut operation will be the same as before."
The M&A promotion should be viewed as one of the entire rehabilitation plans, and the business will operate normally regardless of the progress of the rehabilitation process in the future, the official said. "Even if it becomes an M&A, the company's business will be inherited, and above all, franchise partners such as merchants and suppliers will do business with the company in almost the same form as before."
Korea Pizza Hut is currently undergoing an appeal process at the Supreme Court in connection with a lawsuit for the return of unfair gains.
Pizza Hut Korea explained that the so-called difference deposit, which served as an excuse for the lawsuit, was disclosed because the government made it mandatory to disclose the cost of the franchise through an enforcement decree in 2019. It is a position that it is unacceptable to return unfair gains to franchisees because they did not specify it in the franchise contract written before that.
Meanwhile, while Korea Pizza Hut lost the second trial of the difference deposit, lawsuits against franchise headquarters such as bhc Chicken, Kyochon Chicken, Baskin Robbins, and BR Korea are spreading.
In a recent petition to the Supreme Court's Appeals Tribunal, the Korea Franchise Industry Association said, "The Korean franchise industry has been receiving the difference amount with explicit and implicit consent from franchisees, and it is a natural principle of commerce for merchants to receive margins in the distribution process," adding, "If we suddenly judge it as an unfair advantage and ask to return it, legal stability will be seriously damaged."
The association also said, "The difference deposit is not an exclusive benefit of the franchise headquarters, but a joint fund that is reinvested in various fields such as raw and subsidiary processing and logistics costs, franchise support costs, advertising and marketing costs, and delivery support costs." "Currently, 90% of the restaurant headquarters are receiving the difference deposit, and the proportion of only receiving the difference deposit reaches 60-70%, so the small and medium-sized franchise headquarters are in fear of falling into Juldosan Mountain if the first and second trials are confirmed by the Supreme Court."
