Controversy over Two Documents
The controversies over the sale of Kumho Tire haven’t died down. The Korea Development Bank (KDB) presented an ambiguous proposal on March 24 that it would re-discuss whether to allow Kumho Asiana Group Chairman Park Sam-koo to form a consortium for the purchase of Kumho Tire after reviewing his plan. Under the circumstances, there has been growing controversy about indemnity reports provided by the KDB in January to bidders including China’s Doublestar.
The KDB is in trouble due to two documents – an indemnity report provided to Doublestar by the bank after a preliminary bidding and an agreement of Right of First Refusal exchanged between Kumho Tire creditors and Chairman Park in 2010.
The indemnity report states that Park is not allowed to hand over his right of first refusal to the third party or jointly exercise his right of first refusal with the third party. According to investment banking sources, the KDB sent the indemnity report to five preliminary bidders, including Doublestar, on January 6. The KDB has so far had a basic policy not to allow to form a consortium.
The problem is that the indemnity report conflicts with the agreement of Right of First Refusal. The shareholders council and Park exchanged the agreement in 2010. The agreement states that Park cannot hand over his right of first refusal to purchase Kumho Tire to the third party without prior written approval from the shareholders council. Park said, “It means that it is allowed to form a consortium with written approval from the shareholders council. With the provisory clause in the contract, it doesn’t mean that it is impossible to create a consortium.”
In addition, the shareholders council also said that the KDB failed to submit an official shareholder council-level discussion on the issue before the bank sends the report. Industry watchers believe that the KDB added that it would re-discuss when Park brings his financing plan on March 24 because the bank, which has solely made decisions, will face a difficulty to secure legitimacy with perfunctory discussion alone now. The KDB currently remains silent about the indemnity report.
Business and investment banking industry sources say that the KBD will not be able to avoid lawsuits regardless of the result of the sale of Kumho Tire. When the KDB changes its stance to allow to form a consortium, Doublestart will raise the question. However, the HDB will face a lawsuit filed by Kumho Asiana Group claiming “procedural fault” even when the bank keeps its stance to disallow the consortium.
There is also a growing controversy over the period that Park can exercise his right of first refusal. Park should decide on whether to exercise his right of first refusal or not within 30 days after the shareholders council informs Park about contract details in three days after signing a stock purchase agreement (SPA) with Doublestar. So, Park needs to make the decision by April 14 on the current KDB’s plan. However, Park doesn’t agree on that. An official from Kumho Asiana said, “We haven’t received the indemnity report provided to Doublestar by the KDB yet. As we don’t know accurate terms of sale without it, the deadline counts after receiving the report.” When the KDB insists on closing the deadline by April 14 as its earlier plan, the bank can involve in another legal dispute.
Some say that the sale price of Kumho Tire has increased due to the provision of the indemnity report by the KDB. The stock price of Kumho Tire decreased to 9,000 won (US$8) ahead of the official bidding in January. The figure is down about 20 percent from 11,200 (US$11) of the closing price on September 20 last year when a public notice of the sale announced. At that time, business market watchers say that the reasonable price of the sale is less than 800 billion won (US$712.69 million) even considering the premium of management rights. However, Doublestar offered 955 billion won (US$850.78 million) for Kumho Tire. The figure is equivalent to more than 10,000 won (US$9) per share. An official from the business industry said, “As the candidates got a definite answer from the KDB that Park cannot jointly exercise his right of first refusal with the third party, they made a bigger bid considering the risks of takeover failure at the last minute. The KDB’s policy to disallow Park to form a consortium made the companies offer more money.”
As the situation is getting complicated, some industry watchers even say that the KDB should proceed with a re-bidding for Kumho Tire. This is largely due to the KDB’s unclear work processing, such as the possibility of legal disputes and trademark rights issue of Kumho Tire, as well as protection of the domestic industry ecosystem.