Korea’s H2 M&A calendar packed with big names from LG, Asiana to smaller Coway, Talim

2019.07.19 13:51:28 | 2019.07.19 13:57:04

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South Korea’s merger and acquisition (M&A) calendar is packed in the second half with several near $1 billion deals in the pipeline in diverse category from IT, packaging to rentals and airliners.

Streamlining against business slowdown means good business in the M&A market, with blockbuster sales of Daewoo Shipbuilding & Marine Engineering (DSME) to Hyundai Heavy Industries for about 2 trillion won, copper foil maker KCF Technologies (KCFT) to SKC for 1.2 trillion won and industrial gas supplier Linde Korea to local private equity IMM PE achieved in earlier part of the year.

The second-half pipeline is equally enticing.

The nation’s fourth largest conglomerate LG Group has been accelerating its reorganization efforts to streamline business portfolio by selling non-core assets and to resolve owner family’s cross-shareholding ties. It has embarked on a process to sell a 37.3 percent stake in LG CNS Co. that is estimated to be worth more than 1 trillion won. JP Morgan was named the lead financial advisor for the sale.

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The IT solution and outsourcing service providing unit is 87.3 percent owned by the group’s holding entity LG Corp. in which the group’s fourth-generation young chief Koo Kwang-mo holds nearly 50 percent stake. The stake sale is aimed at avoiding the government’s tougher regulations on intra-group trading. The nation’s new fair trade law limits large business groups’ inter-affiliate transactions by banning a company in which owner families hold over a 20 percent stake from holding more than 50 percent stake in a subsidiary.

The group has also put LG Electronics’ water treatment business and LG Uplus’ payment gateway (PG) business unit up for sale in a bid to raise funds to invest in future-promising new growth engines.

Another mega deal in the pipeline is the sale of the country’s top paper makers Tailim Packaging and Tailim Paper which is expected to fetch up to 1 trillion won amid heated demand for boxing materials due to the brisk online shopping and delivery businesses. Local private equity IMM PE, the largest shareholder of the two companies, shortlisted Hansol Paper, China’s Shanying International Holdings, Sae-A Trading, America’s Texas Pacific Group (TPG) and Bain Capital after a preliminary bid held last month. The company aims to complete the deal led by Morgan Stanley within this year by holding the main auction next month.

The country’s top home appliance rental service provider Woongjin Coway has also been put on sale by Woongjin Group who decided to sell the unit just three months after bringing it back under its arm at 1.8 trillion won in six years. The group said it had no choice but to re-sell the hard-won affiliate to prevent the financial problems of its solar cell manufacturing unit Woongjin Energy under court receivership from spilling over to the entire group. A local credit rating agency downgraded the group’s holding entity Woongjin from BBB+ to BBB- due to the financial woes.

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The rental unit is expected to draw fierce competition from home and abroad thanks to its strong performance. It raked in record-high sales of 2.7 trillion won and 520 billion won in operating profit last year. Market watchers expect local conglomerates such as LG, GS, Lotte, CJ and Hyundai Department Store eyeing to expand the rental business would likely to participate in the buyout race.

Next in the list is the sale of the country’s second largest full-service carrier Asiana Airlines Inc. put up by its parent Kumho Industrial Co. in April to receive emergency loan and debt relief. The airline is mired with 3.4 trillion won in short-term debt including 1.3 trillion won of loans maturing this year.

The hefty price tag of at least 1.2 trillion won to up to 2 trillion won has delayed the sale process, but the price burden has been eased recently as creditors pledged to provide interim loans of 500 billion won. Although Aekyung Group is the only conglomerate who officially expressed its willingness to buy the carrier, market experts other conglomerates such as SK, Lotte, Hanwha and GS could be potential contenders.

Its creditors including state-run Korea Development Bank and Kumho Industrial plan to shortlist candidates by early September and allow them to conduct their own due diligence. They aim to complete the deal within this year by selecting a preferred bidder in October. The sellers still want to bundle the deal with the two budget affiliates, Air Busan and Air Seoul, but industry sources said separate sales could also be possible according to market conditions.

The sale of country’s largest machine tools manufacturer Doosan Machine Tools Co. is also expected to be finished within the year. MBK Partners who had bought the company in 2016 named Bank of America Merrill Lynch to lead the sale. Thanks to its robust business performance, the deal is estimated to cost up to 3 trillion won, according to market sources.

By Park Jae-young and Choi Mira

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