Anchor Equity, LINE Games Face Heated Appeal Battle Over 223.5 Billion Won Put Option [fn Market Watch]

[The Financial News]  A legal dispute over the recovery of Anchor Equity Partners’ investment in LINE Games has moved to the appellate stage. The dispute follows the dismissal at trial of a claim by a financial investor (FI), which had invested about 125 billion won and exercised a put option (a right to demand the purchase of shares) worth 223.5 billion won. The key issue on appeal is whether the breach of contract itself constitutes grounds for exercising the put option, or whether the seriousness of the breach must also be proven separately.
According to investment banking (IB) industry sources on the 8th, Lungo Entertainment, a special purpose company (SPC) established by Anchor Equity Partners, is pursuing an appeal in a lawsuit against Z Intermediate Global, an affiliate of the LINE Yahoo Group, seeking payment of the share purchase price. The amount claimed is about 223.5 billion won.
Lungo invested about 125 billion won in LINE Games in 2018 and entered into a shareholders’ agreement. The agreement included the LINE side’s non-compete obligation, as well as LINE Games’ exclusive decision-making rights over new games within the group and exclusive publishing rights. These provisions were intended to prevent business opportunities within the group from being transferred to other affiliates.
Lungo claims that the LINE side infringed on LINE Games’ business opportunities by failing to properly provide information about the development and release of new games. On that basis, it exercised the put option in September 2023, but filed suit the following year after payment was not made. In December last year, the court of first instance dismissed Lungo’s claim, citing, among other things, the seriousness of the breach, while acknowledging the possibility that the contract had been breached. Lungo appealed, arguing that the ruling imposed additional requirements not found in the contract’s wording.
At the first appellate hearing held at the Seoul High Court on September 3, the two sides again clashed over how to interpret the contract. Lungo’s position is that the breach of the non-compete and business-opportunity protection obligations itself constitutes grounds for exercising the put option. The LINE Yahoo side countered that notice concerning new games was merely an ancillary procedural obligation, and that a delay in giving notice alone should not be considered sufficient to trigger an obligation to pay a large share purchase price.
The issue of investor dilution was also raised. According to Lungo, its stake fell from 21.4% to 0.5% after LINE Games’ paid-in capital increase. By contrast, the LINE Yahoo side’s stake rose from 35.7% to 83.8%. Lungo also claims that the capital increase breached the shareholders’ agreement.
The dispute is also seen as a case illustrating the conditions under which contractual exit rights can be made effective in investments in unlisted companies.
FIs typically manage the risk of recovering their investments through provisions such as put options, non-compete clauses and business-opportunity protections. However, recovery can be delayed for a prolonged period if the parties disagree over how to interpret the conditions for exercising those rights.
The IB industry is watching the appeal closely, as it could serve as a case distinguishing the grounds for exercising a put option under an investment contract from the scope of proof required to actually exercise that right. One IB industry source noted, "In particular, the key question will be whether separate proof of damages is required for the contractual obligation to purchase shares, unlike in a claim for damages."
The next hearing is scheduled for November 12. The appellate ruling is expected to influence the design of investor-protection provisions in future investment contracts for unlisted companies.

[email protected] Kim Kyung-ah Reporter