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THE INVESTOR

Automobiles

[Q&A] Kumho skeptical about Doublestar’s buyout success

  • PUBLISHED :March 13, 2017 - 16:57
  • UPDATED :March 13, 2017 - 16:57
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[THE INVESTOR] Kumho Asiana Group on March 13 cast doubts over Chinese tire maker Qingdao Doublestar’s ability to successfully operate Kumho Tire after its planned acquisition.

“We don’t see where Doublestar’s confidence is coming from. Our understanding is that Doublestar is one-fourth the size of Kumho Tire and its revenue falls short,” Yoon Byong-chul, Kumho Asiana Group’s chief financial officer, told reporters in Seoul on March 13. 

“(Kumho Asiana Group) operated Kumho Tire for a long time. Considering the local sentiments, relationship with the union, export expertise and connection with carmakers, we think (Kumho Tire) is better off to create synergy when Kumho Asiana buys the tire maker over a foreign firm.”




Related:
Creditors approve Doublestar-Kumho Tire deal
Doubts over Kumho chief’s W1tr takeover fund


The comment came on the day when creditors of Kumho Tire signed a stock purchase agreement with Doublestar to sell their combined 42.1 percent share for 955 billion won (US$833.19 million).

Kumho Asiana Group, the former owner of South Korea’s No. 2 tire maker, expressed its discontent at the creditors’ decision for allowing Doublestar to form a consortium to finance the deal when it was prohibited to do so.

“We cannot understand why Doublestar has been permitted to form a consortium of six companies while we are not,” said Kumho Asiana Group Chief Communications Officer Kim Se-young. “If we are prevented from forming a consortium, we will give up our buyback option for Kumho Tire.”

Kumho Tire was put under the control of creditors in 2009 due to a liquidity crisis caused by the group’s excessive business expansion.

During that time, Kumho Asiana Group chief Park Sam-koo was granted the rights of first refusal in the sell-off that allows him to repurchase the stake by paying more than the highest bidder.

Below are the answers to some key questions during the media briefing held at the Kumho Asiana Group headquarters.

Q: Which firms are you preparing to form a consortium with for the deal?

A: We have been consulting with several strategic investors, regardless of the creditor’s approval on setting up a consortium. We have entered into some meaningful negotiations with several firms, but it is not the right time to disclose (the name of these) firms. The strategic investors include Chinese firms as well.

Q: Why did Kumho Asiana Group not make its request to set up a consortium public?

A: We have requested (the creditors) to allow us to form a consortium several times. But we could not make our request public, because we were told that it would be considered as blocking the deal process and faced pressure to keep it under wraps.

Q: What did the creditors tell Kumho Asiana Group about forming a consortium? Kumho Asiana Group already spent billions of dollars to buy Kumho Industrial. If the Korea Development Bank allows it to form a consortium, can Kumho Asiana Group raise enough capital for the purchase?

A: The creditors never said they won’t allow us to form a consortium. Under the rights of first refusal agreement, if (Park Sam-koo) wishes to transfer its priority option to buy back the company to a third party, (Park) needs to request the creditors in advance and the creditors will announce their decision. But the Korea Development, which is leading the creditors, has refused to put this matter to a vote.

We requested the KDB on March 2 to consider the matter, but were ignored, so we sent a letter of request to all the creditor banks on March 6.

If the creditors do not allow us to form a consortium, we will not exercise the rights to buy back (Kumho Tire). But if the (creditors) approve a consortium, we are confident of finalizing the deal without causing disadvantage to the group, as the negotiations are underway with several strategic investors.

Q: Did Doublestar ask Kumho Asiana Group for permission to use the Kumho logo?

A: Doublestar has yet not requested to use the Kumho trademark. But the creditors have asked Kumho Asiana Group to allow the use of Kumho logo for five years.

Q: Can Chairman Park Sam-koo pay for the deal without forming a consortium, and only through financial investors?

A: Kumho Invest is a special purpose entity created by Chairman Park Sam-koo and (his eldest son) Park Se-chang for the purchase. And the SPC can pay for the purchase with or without forming a consortium.

Earlier, we never said we will buy back the firm only through financial investors. If the group buys back Kumho Tire entirely through financial investors, the impact will be huge on the group. Considering the current economic situation, and the affiliates’ business operations, the buyout funded only by financial investors will become a winner’s curse and be a burden to (the affiliates). We have no intentions of buying back the firm bearing such a burden.

The reason why we asked (the creditors) to allow the buyout through strategic investors is first to decrease the (financial) burden after the acquisition. Second, we felt that it is time to invest more funds to strengthen technology and raise the competitiveness of Kumho Tire (instead of using the funds for the buyout).

Q: How do you think Doublestar will operate Kumho Tire after the acquisition?

A: We don’t see where Doublestar’s confidence is coming from. It is our understanding that Doublestar is one-fourth the size of Kumho Tire and the revenue falls short. (Kumho Asiana Group) operated Kumho Tire for a long time. Considering the local sentiments, relationship with the union, export expertise and connection with carmakers, we think there will be a lot more synergy for Kumho Asiana to buy (Kumho Tire) than a foreign firm.

It’s not because Doublestar is a Chinese firm, nor because of the THAAD issue.

We have already told the creditors that if we are prevented from forming a consortium, we will give up (Kumho Tire). We have negotiated with KDB which said it will discuss with other creditors, but it just formed a stock purchase agreement.

By Ahn Sung-mi and Won Ho-jung
(sahn@heraldcorp.com)(hjwon@heraldcorp.com)
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