Chinese tire maker Qingdao Doublestar has tentatively agreed with Korea Development Bank to acquire a 45 percent stake in Kumho Tire for 646.3 billion won (US$600 million), according to industry sources on March 6.
“The two parties signed a tentative agreement last week,” an industry source close to the matter told The Investor on condition of anonymity. The firm will pay about 5,000 won per share.
The source, however, made it clear that the talks have not fully concluded, saying more detailed deal conditions, including job security of about 5,000 employees, will be further discussed next month.
This is the second attempt by Doublestar to acquire a controlling stake in Kumho Tire, the cash-strapped No. 2 tire maker in Korea. In September last year, the firm became a preferred bidder with an offer price of 955 billion won. During the final talks, it lowered the price to 800 billion won and then asked another 10 percent discount citing the firm’s constant operating losses, but the creditor bank declined the request.
“This time, the deal is highly likely to be closed considering the buying price has been almost cut by half from last year,” said another source who also wished to be unnamed.
Doublestar has also come up with a more favorable rescue plan for workers who have been showing fierce resistance to a foreign ownership. The firm reportedly plans to maintain the current workforce at least for the next three years with no drastic salary cuts.
The Chinese tire maker whose global ranking in terms of sales remains at around 30 has thus far focused on the commercial vehicle market. By acquiring Kumho Tire, the 15th-largest globally, the firm is expected to diversify its business portfolio into the passenger car segment.
Industry watchers say if the current talks with Doublestar fail again, Kumho Tire has no other option but to filing for court receivership. The tire maker posted an operating loss of 156.9 billion won last year. Its accumulative losses are estimated to have reached almost 200 billion won over the past three years.
The union is opposing the stake sale, citing their job security under a new owner and technology leaks to a Chinese rival. But the workers are losing their negotiation power as they refuse to accept cuts in salary and other welfare benefits.
The creditor bank that is also involved in similar talks with GM Korea, the troubled local unit of General Motors, also seems to have no intention to pour public money into an insolvent company that is struggling from lax management.
By Lee Ji-yoon and Park Ga-young