A consortium led by heavy equipment maker Kanglim and strategic partner Ssang Bang Wool has challenged a stalking-horse bidder to emerge as a strong candidate to take over distressed Korean budget carrier Eastar Jet Co. under court management.

According to multiple sources from the investment bank industry, Kanglim consortium was the only contender that submitted a letter of intent for the tender carried out by Seoul Bankruptcy Court and sales advisor Deloitte Anjin LLC on Monday.

Shares of Kanglim rose 4.76 percent to close at 4,400 won and Ssang Bang Wool 29.91 percent to 1,390 won on Tuesday.

The consortium has fielded Kim Jung-shik, former chief executive of Eastar Jet, to head the M&A taskforce and argues for fashion and culture synergy effect in the Chinese market by adding a passenger airline.

The Seoul court and Deloitte Anjin plans to review Kanglim’s takeover proposal and tap the preliminary bidding choice Sungjeong if it wants to act its preferential right in the deal.

The Eastar Jet sale is being carried out in a stalking horse tender, meaning that the seller internally decides on a buyer via provisional contract before the sale and then invite other buyers who would present better pricing and buyout terms.

Sungjeong, which proposed a bidding price of 65 billion won ($58.2 million), has the call option to acquire Eastar Jet if it can match the price proposed by the latecomer.

The Seoul court and Deloitte Anjin has decided not to carry out a progressive deal that engages bidders in an additional price competition to raise sales price.

Korea’s leading livestock and animal feed company Harim Group which had expressed strong intent to add the carrier to enhance its logistics portfolio led by bulk carrier Pan Ocean, bowed out of the entry.

The Kanglim-Ssang Bang Wool consortium is said to have offered a price higher than 65 billion won. Together, the two have over 100 billion won in cash and equivalent assets as of end of last year.

Former Eastar Jet CEO Kim would be the best person to help the carrier turn around as he is familiar with the labor conflict and management issues, an official from the consortium said.

Kanglim is the largest shareholder of Korea’s top two underwear brands Vivien and Ssang Bang Wool. Its stake of 24.78 percent purchased in 2014 has been lowered to 18 percent, but remains as the largest shareholder of Ssang Bang Wool. The two have been partnering up in M&A ever since.

The Kanglim consortium eyes the competitiveness of Eastar Jet’s China routes. The carrier flies to 12 destinations in China, the largest among local budget carriers, and it has a slot to manage an airport in the country.

The consortium is hoping to expand its business in China. Underwear manufacturer Ssang Bang Wool and Vivien plans to create synergy with Eastar Jet to target 74 trillion won underwear market in China. Its subsidiary IOK Company can also expand content manufacturing and management business.

Kanglim, an established name in the special vehicle equipment market, has been active in the M&A scene. Together with Ssang Bang Wool, it bought electronics component company Nanos in 2016, lingerie brand Vivien in 2019, and IOK Company in 2020.

Its bidding rival Sungjeong, a development firm based in Jeolla Province where the carrier is also headquartered, can win over the airliner if it can match the price proposed by Kanglim consortium. It remains to be seen, however, if the small- and mid-size enterprise can afford to pool in over 100 billion won in funds in addition to the takeover to revive the budget carrier.

Sungjeong, which focuses on earthwork, golf course management business, and property development, raised 6 billion won in sales last year. It is affiliated with Baekje Country Club and Daeguk Construction, whose combined annual sales stands at 50 billion won.

Contenders going after Eastar Jet needs 100 billion won for the takeover and another 100 billion won to 200 billion won to normalize its business, an unnamed industry official said. More than 10 contenders submitted preliminary bids but only two to three were serious about the bid after carrying out due diligence. Harim Group also took note of contingent liability.

By Kim Dae-gi, Jin Young-tae, Kim Hyo-hye, and Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]