Nearing Deal Close?
The Korea Development Bank (KDB) announced on July 26 that Kumho Tire creditors will accept chairman Park Sam-koo’s recent proposal and pay the tire manufacturer a shortfall in trademark royalties on a yearly basis.
The chairman adhered to 0.5% of sales as the trademark royalties to remain effective for 20 years. Doublestar Tyre, meanwhile, insisted on 0.2% and five years with an option of 15 years while signing a stock purchase agreement with the creditors. The creditors’ decision to accept the chairman’s proposal is because the conclusion of the M&A deal can be more advantageous in terms of profit and litigation risk alike in spite of the payment of the shortfall.
The conflict between the two sides can emerge again at any time though. For example, some point out that the payment of the shortfall by the creditors constitutes acquisition price adjustment in fact. “The right of first refusal must be notified again if a situation advantageous for the acquirer results from a cut in acquisition price in return to the upward change in royalties to 0.5%,” said the Kumho Asiana Group. In response, the creditors are claiming that no discount has occurred because the selling price according to the agreement itself has not been lowered.
The creditors have to pay up to 270 billion won. According to the agreement, the amount that is equivalent to 0.3% is to be paid for five years, and then the amount equivalent to 0.5% is to be paid for 15 years if Doublestar does not use the trademark rights. The creditors are planning to pay the money in a lump sum when there is a request from Kumho Tire.