Restructuring of Hyundai Motor Group
The Korea Development Bank (KDB) is opposed to the merger between Hyundai Engineering and Hyundai AMCO scheduled for April this year.
KDB is the second-largest shareholder of Hyundai Engineering and is capable of thwarting the merger by means of its appraisal rights. Then, the Hyundai Motor Group’s plan to strengthen Vice Chairman Chung Eui-seon’s control of the group through the merger could be blocked.
According to industry sources, the bank has recently informed Hyundai Engineering of its opposition to the merger with Hyundai AMCO. In general, a company going for a merger is supposed to purchase the shares of the stockholders opposed to it, so as to protect their property rights.
The problem is one of the provisory clauses included in the merger contract between the two companies, which stipulates that the contract can be canceled if the sum of the appraisal rights exceeds 100 billion won (US$93.2 million). If the amount increases, the financing costs rise to reduce the actual benefit of the merger, although the purpose of the merger is to maximize the synergy effect through the combination of the construction and design arms.
Assuming a share price of 403,586 won (US$376.14), KDB’s shares are equivalent to 121 billion won (US$113 million), which is much higher than the contract cancellation condition of 250,000 shares and 100 billion won. If KDB exercises its rights on at least 83% of its shares, the deal can be broken. This is why many insiders are regarding KDB as the party with the deciding vote.
The merger could also be thwarted when KDB exercises its rights on a part of its shares and the minority shareholders, who are riding on the fence for now, opt to take sides. The bank has not determined the degree of the exercise yet.
Still, KDB can take profits of approximately 100 billion won if it sells its Hyundai Engineering shares, which have been held for over 10 years after the purchase at face value. Thus the bank cannot give up on the shares that easily. The money could be a sort of blessing in the wake of the restructuring of insolvent companies that continued throughout last year. “We still have some time for a decision associated with the exercise, and we will mull over the matter during the time,” said KDB.
In the meantime, Hyundai Motor Group is planning to come up with a countermeasure after watching the situation until the general stockholders’ meeting slated for March 19.