Making Fresh Development?
As Tire Bank officially announced its will to take over Kumho Tire, things have become complicated for the Korea Development Bank (KDB), the main creditor bank considering selling the tire company off to a foreign company or putting the tire company in court receivership.
"Since the problem of the selloff of Kumho Tire has not been solved, we could not just wait and see the matter as a Korean company and decided to push forward with the acquisition of the tire company,” said Kim Jong-kyu, chairman of Tire Bank, at the Daejeon Chamber of Commerce and Industry in the morning of March 27. "We will prepare money for the takeover of the company by listing the Tire Bank on the stock market or borrowing money by providing collateral to the creditors,” chairman Kim said. “Two foreign companies which are not Chinese told us that if Tire Bank takes care of Kumho Tire factories in Korea, they will join Tire Bank in acquiring Kumho Tire.”
This development has embarrassed the KDB which has considered two plans only –- selling off Kumho Tire to Doublestar and putting the tire company in court receivership. "March 30 is the deadline,” said Lee Dong-geol, chairman of the KDB on March 26. "There is a high possibility that Kumho Tire will go into court receivership after the deadline." Asked whether or not a negotiation can take place if another entity comes forward as a takeover candidate even after March 30, he dismissed it, saying "No way after the deadline."
Kumho Tire's union is showing a positive stance on Tire Bank’s announcement as Tire Bank showed its intention to acquire Kumho Tire. The labor union also claimed that multiple companies in the Jeonnam region were willing to buy Kumho Tires apart from Tire Bank. However, "It was a one-sided press conference by Tire Bank and Tire Bank never submitted a letter of intent to acquire the company to us. It takes a long time to prepare such a document," a KDB official said.
"Tire Bank expressed its intention to acquire Kumho Tire at this point in order to force Kumho Tire to miss golden hours and enter court receivership," Kim Jong-ho, chairman of Kumho Tire, said in a posting on the company’s internal bulletin board. “In 1996, like Nexen Tires, which bought Woosung Tire in 1999, they mean to buy Kumho Tire for a giveaway price once Kumho Tire undergoes court receivership."
Kumho Tire can be purchased at about 650 billion won (US$585 million). According to the Financial Supervisory Service, Tire Bank posted 372.9 billion won in sales, 66.4 billion won (US$59 million) in operating profit and 27.3 billion won (US$24 million) in net profit as of the end of 2016. Its operating profit ratio stood at 17.8%, which means that Tire Bank has a good profitability index when taking into account the fact that the average operating profit ratio of Korean manufacturing companies was a single digit in that year. "Considering its sales, if Tire Bank is listed on the stock market, its market capitalization will reach about 500 billion won (US$450 million), I think," said an analyst at a Korean securities firm.
Currently, Tire Bank has total assets of 364 billion won (US$327 million), of which 60% is debt. If a company does not have enough assets, the company can borrow money by using property such as land or buildings. Tire Bank has more than 400 stores nationwide, and many of them are owned by the company. Of the total assets of 190.5 billion won (US$171 million), 85 billion won (US$76 million) is already collateralized by banks and tire makers. As a result, some experts say that it is questionable whether Tire Bank will be able to raise 650 billion won (US$585) for the takeover of Kumho Tire.