Counter Proposal
Kumho Asiana Group Chairman Park Sam-koo proposed a final offer regarding the use of Kumho Tire trademark, which can make or break the sale of Kumho Tire. He partially accepted the revised offer from the Korea Development Bank (KDB) but asked creditors to clarify the brand usage fees. Park is trying to uphold a cause and pursue practical interest at the same time. However, industry watchers say that it is the offer the KDB cannot easily accept. Accordingly, the KDB is now forced to reconsider the stock purchase agreement (SPA) signed with China’s Doublestar.
Kumho Industrial Co. held its board meeting on July 18 and came up with the revised offer of paying 0.5 percent of sales in brand royalties for 12.5 years and being unable to cancel the use of the trademark during the period. The KDB partially accepted Kumho’s request to pay 0.5 percent of sales for brand rights to Kumho Tire on the 7th. However, the bank asked to allow it to pay 0.3 percent of brand royalties with a lump sum of 84.7 billion won (US$75.32 million) in addition to 0.2 percent from Doublestar. The 12.5-year period was also a compromise of Kumho’s original demand of 20 years of obligatory use and Doublestar’s first five years of use followed by a possible extension of 15 years.
When Doublestar uses the Kumho trademark for the first five years after the acquisition, Kumho Industrial will receive only 0.3 percent of brand royalties from the creditors after that. It means that the South Korean company will receive 0.5 percent Kumho Tire’s revenues for the Kumho name for five years and 0.3 percent for 7.5 years. In this case, the average rate for 12.5 years is 0.38 percent, which falls short of 0.5 percent of Kumho’s request. This is why Kumho asked for 12.5 years of the obligatory brand usage period.
In particular, Kumho said, “The trademark rights are not the subject to be traded with compensations for a certain period. We will enter into a brand usage contract in the normal way based on business accounting principles and common practices of transaction. In short, the company would not permit 84.7 billion won (US$75.32 million), or 0.3 percent, to come from the KDB but would require Doublestar, the actual user of the brand, to pay the whole 0.5 percent on principle. In addition, Kumho sought to prevent the KDB from proposing a new offer regarding additional compensations. An official from Kumho said, “We had four board meetings regarding to the Kumho trademark. It now lies with the KDB to accept or reject our proposal.”
Given the current situation, the only way to address the trademark issue is for the KDB to modify the SPA signed with Doublestar. Accordingly, the KDB is in trouble as the modification of the SPA means the procedure of re-sale. The ball is in KDB’s court now. An official from the KDB said, “We have received an official document from Kumho and we are currently reviewing legal meanings. We can hold a shareholders’ meeting on the 19th depending on the outcome of the review.”
The sale procedure of Kumho Tire needs to be completed by September 23. When the KDB fails to complete the deal by then, the SPA signed with Doublestar will be invalid and the KDB needs to proceed with re-bidding. With the latest counter offer, Chairman Park justified its conduct by demanding due rights, not interrupting the sale of Kumho Tire. He also pursued practical interest by securing a strong bargaining position at the same time.
Meanwhile, there is a growing opposition to selling Kumho Tire to a foreign company. Kumho Tire’s labor union consisting of both regular and non-regular workers held a press conference at the Gwangju Metropolitan Council building on the same day and asked the KDB to stop the unreasonable sale procedure. The labor union also submitted an outograph book signed by 10,000 citizens, which includes an expansion plan of investment in domestic facilities for job security and sustainable growth, to the city council.