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| Seen is a LocknLock outlet inside Lotte Mall Suji branch in Yongin, Gyeonggi Province. Courtesy of LocknLock |
By Park Jae-hyuk
The LocknLock union formed earlier this month has emerged as a major stumbling block to Affinity Equity Partners' planned ambitious divestments from the nation's leading food container maker, which will likely take place sometime next year.
Affinity took over a 63.56 percent stake in LocknLock for 629.3 billion won ($560 million) in August 2017 from company founder Kim Jun-il and his family. Considering that private equity firms (PEFs) generally pursue exits from their portfolio companies five years after their acquisitions, Affinity has been expected to sell its controlling stake in LocknLock in 2022.
The union also claimed rumors were spreading inside the company that the foreign PEF will seek divestment next year, although a LocknLock spokeswoman said nothing has been decided yet.
"We want to prevent layoffs before the PEF's planned exit next year," union leader Son Se-ho said in a statement last Thursday.
According to the union, the management decided last month to close four of its eight stores in Seoul and Gyeonggi Province, recommending dozens of workers there to resign. The remaining stores may not survive either because LocknLock explained the closures were intended for its digitization to boost online sales.
The union interpreted the recent restructuring of outlets and workforce reduction as parts of Affinity's efforts to make short-term profits by selling LocknLock for a higher price after raising its valuation.
Ever since Affinity and the LocknLock founder signed the takeover deal, it has been said that hundreds of the Korean firm's workers were concerned about possible restructuring by the global PEF sooner or later, although the founder said the deal guaranteed their job security. The management has therefore been asked to stop forcing workers to resign.
"While the amount of profits going to the PEF and management have increased, the working conditions have been unchanged or gotten worse," the union leader said. "After the announcement on April 7, many employees have joined the union."
The union has complained of wages, saying the employees were unilaterally notified of freezing of salaries in March last year and a 2 percent hike last month. According to the union, the management promised to give an incentive to those who performed well, but only a few received it.
Once the dispute between labor and management intensifies, Affinity may face difficulties in finding a new buyer of LocknLock and selling the company for more than its acquisition price.
LocknLock has already suffered deteriorating profits over the past few years. The Korean firm posted an operating profit of 51.5 billion won in 2017, and its earnings declined to 36.5 billion won in 2018 and 24.3 billion won in 2019. Although its operating profit last year rose 19 percent year-on-year to 28.9 billion won due to an increase in consumption of kitchenware amid the pandemic, this was still 20 percent lower than its 2018 earnings.
Its stock price, which reached 31,700 won in December 2017, has also remained below 20,000 won since 2019. Affinity purchased LocknLock shares for 18,000 won per ordinary share, so it attempted to raise the stock price through a series of share buybacks. However, LocknLock's share price has stood around 15,000 won over the past month.
Some retail investors have expressed concerns over a possible decline in LocknLock's stock price, after they realized the company workers formed the union. The investors regarded the union activities and pension funds selling LocknLock shares as unfavorable factors to the stock price. Last Monday, the National Pension Service announced its stake in LocknLock was lowered to 7.39 percent on March 24 from 8.4 percent.
The company, however, has been dispelling worries among market insiders about the union.
"We think the recent formation of the union was intended to produce a win-win situation for both employers and employees," its spokeswoman said.
