W2.55tr divorce ruling could reshape Smilegate ownership

A record-breaking divorce settlement of 2.55 trillion won ($1.9 billion) is on pace to rattle the shareholder dynamics of Korean gaming powerhouse Smilegate, a private company held entirely by its founder Kwon Hyuk-bin, if the ruling stands.

The Seoul Family Court on Wednesday ordered Kwon, Smilegate’s chief visionary officer, to hand over 35 percent of his shares in his company plus 65 billion won in cash after ruling in favor of Kwon’s wife, identified by her surname Lee. The court estimated Kwon’s Smilegate shares to be worth approximately 7.1 trillion won.

The court order, if upheld, would end Kwon’s status as Smilegate’s sole shareholder, a position he has held since 2012. However, as he is still entitled to retain a 65 percent stake, it would leave him with a comfortable majority and a relatively firm grip on the unlisted game developer.

While Kwon’s 65 percent majority ownership means his authority over ordinary corporate decisions — the appointment of board members and CEOs along with the approval of financial statements — is unlikely to change dramatically, the emergence of a 35 percent shareholder could introduce a new layer of complexity to Smilegate’s governance.

Under Korea’s Commercial Act, major corporate decisions such as amendments to bylaws, mergers and splits and the removal of directors or auditors require a special resolution. Such special resolutions generally require the support of at least two-thirds of voting rights represented at a shareholders meeting, as well as at least one-third of all issued shares.

This threshold gives a shareholder with a 33 percent stake or higher the ability to block certain big decisions even without controlling the company.

Lee’s potential 35 percent stake takeover could become a significant factor in Smilegate’s future decisions involving dividends, capital policies, restructuring of affiliates, mergers and splits, as well as any initial public offering or large-scale share sale.

Smilegate has relied heavily on other executives to run its major businesses instead of Kwon trying to manage everything, so the ownership change would not necessarily translate into an immediate shake-up in its day-to-day operations. But, in the bigger picture, potential hiccups will linger if the ruling stands without significant change by a higher court.

“Even if the current ruling is upheld, Kwon’s 65 percent stake is going to be enough for him to keep making regular management decisions without much interference,” said a gaming industry official.

“But you have to take in the fact that the divorce settlement will probably empower Lee, who is apparently not happy with her husband. If she eventually becomes the second-biggest shareholder of Smilegate, she could shake up the company’s critical decisions to rattle Kwon.”

Kwon’s legal representative said the team would review the full ruling before deciding on further legal proceedings. Lee’s representative said she respected the court’s decision, noting that future action plans will be determined after receiving the official court ruling.

As both sides could still appeal the ruling, the final ownership structure remains uncertain. The two parties will have two weeks from the moment they receive the court’s official, full-page ruling to file for an appeal.

Smilegate said the company had no particular comment on the personal affairs of its major shareholder and would continue carrying on its business as usual.