Dropping His Right This Time
Kumho Asiana Group Chairman Park Sam-koo decided not to exercise his right of first refusal to acquire a stake in Kumho Tire. However, he urged creditors for a fair rebid, calling the process of selling led by state-run Korea Development Bank (KDB) “unjust and unfair.” Accordingly, the takeover battle for Kumho Tire is likely to enter the second round.
Park said on April 18, “Kumho Asiana has continuously asked the KDB to process the deal fairly and to allow to form a consortium. But, the KDB unfairly and unjustly allowed Doublestar, the preferred bidder, to submit the bid as a consortium, while it disallowed Kumho Asiana, which has the right of first refusal, to form a consortium.”
He added, “Kumho Asiana strongly urges to immediately stop the current sale of Kumho Tire, which is unfair and unjust, and have a fair rebid.” Park considered legal action first but decided not to file a lawsuit against the bank this time. However, he said that the group will seek for every means including legal actions to hold creditors responsible when the enterprise value and growth of Kumho Tire drops due to the unfair and unjust sale.”
Industry sources say that Park hasn’t completely given up Kumho Tire and he is taking time to wait for a next opportunity. The fact that Kumho Asiana announced not to take legal action for now can be understood in the same context.
As Park decided not to exercise his right to buy back Kumho Tire, creditors will have talks of the Kumho Tire deal with China’s Doublestar on the 20th. However, there are many variables. Doublestar needs to make a full payment within three months. It can take a month to receive approval from the government and creditors can extend the completion date of the sale for a month.
During the period, there are three variables as well. First of all, there is a presidential election. Whoever wins the election, he is highly likely to change deputy prime minister for Economic Affairs, chairman of the Financial Services Commission and president of the KDB after the election. In this case, the sale can be reconsidered from the starting point.
There also remains a trademark rights problem. The KDB never had discussions with Kumho Industrial, which has the trademark rights of the Kumho brand, in the process of the sale of Kumho Tire. As Doublestar said that it offered 950 billion won (US$831.15 million) for the sale, including the ownership of the Kumho brand, there will be lawsuits in the future. When Doublestar, a passenger car and truck tire manufacturer, cannot use the Kumho brand, it should recalculate the purchase price due to a rapid drop in its actual profits from the takeover of Kumho Tire.
The repayment of 1.59 trillion won (US$1.39 billion) of Kumho Tire’s debts, which comes due in June, is another unstable factor. Creditors say that they can consider the extension of its domestic debt maturity and redemption by installment, but its overseas debts should be repaid on the due date. However, Doublestar requested to postpone the repayment for five years under the current conditions for redemption of debts and pay back its debts in installments over a five-year period. If the Chinese tire producer and creditors fail to reach an agreement on the issue, the sale can fall apart.