Line Games is facing its biggest crisis since its inception, continuing to report annual losses for the eighth consecutive year while relying on capital increases from major shareholders and facing a 223.5 billion won lawsuit over stock sale payments.
According to industry sources, the first hearing for the appeal of the lawsuit filed by Rungo Entertainment against Line Games' largest shareholder is scheduled for September 3 at the Seoul High Court, nearly nine months after the first ruling in December.
Rungo is an investment vehicle established by private equity firm Anchor Equity Partners. In 2018, it invested 125 billion won in Line Games, acquiring a 27.6% stake. At that time, it entered into a shareholder agreement with Line Games and its largest shareholder, Line Corporation. Following a restructuring, the largest shareholder position is now held by Jet Media Global, a subsidiary of Japan's Line Yahoo (LY) Group.
The core of the lawsuit revolves around a non-compete clause included in the shareholder agreement. At the time, Line Yahoo was involved in gaming through its subsidiaries, necessitating a mechanism to prevent new gaming opportunities from being diverted to other affiliates. The agreement stipulated that Line Yahoo would allow Line Games to determine whether new games within the group were core games, and if deemed so, Line Games would have exclusive publishing rights.
Rungo claims that Line Yahoo violated this obligation and exercised a put option in September 2023. The payment was to be calculated by adding a 15% annual compound interest to the principal investment from the transaction date. After Line Yahoo failed to make the payment, Rungo filed a lawsuit in January 2024 for 223.5 billion won.
The first ruling acknowledged the possibility of a breach of contract by Line Yahoo but dismissed Rungo's claims. The court determined that the requirement for a 'serious breach' not specified in the contract was necessary for exercising the put option, and Rungo did not sufficiently prove that this condition was met. Rungo argues that the put option is a separate remedy from contract termination and has appealed on the grounds that no additional conditions should be imposed.
Ahead of the appeal, a recent capital increase by Line Games has emerged as a new point of contention. In March, Line Games conducted a rights offering, issuing new shares at 500 won each. Following this increase, Line Yahoo's ownership stake rose from 35.7% to 83.8%, while Rungo's stake plummeted from 21.4% to 0.5%. Rungo contends that the capital increase was conducted at a price significantly lower than the minimum issuance price of 863,594 won stipulated in the shareholder agreement, infringing on minority shareholder rights.
Line Games' decision to pursue a capital increase stems from chronic poor performance. Since establishing its current corporate structure in 2018, the company has consistently reported annual losses, with an operating loss of 14.9 billion won last year. Revenue has also declined from 82.8 billion won in 2022 to 48.9 billion won in 2023, 43.5 billion won in 2024, and 33.5 billion won last year.
The decline is attributed to a lack of successful new releases. The natural decrease in revenue from existing live games, coupled with a gap in new releases, has led to a contraction in the company's size. Line Games aims to reverse this trend by expanding its portfolio, focusing on PC games, and launching new titles like 'Amber and Blade,' but has yet to see an improvement in performance.
* This article has been translated by AI.
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