To Meet Regulations on Intra-group Transactions
LG Corp. will sell a 35 percent stake in LG CNS. LG Corp., the holding company of LG Group, currently holds 85 percent of the system integration affiliate.
LG Group is expected to secure about one trillion won in cash through the stake sale. Business watchers expect the group to use the funds to finance M&A deals to secure new growth engines.
LG Corp. announced on Nov. 6 that it has selected Macquarie PE as the preferred bidder for the stake sale. LG CNS is a key subsidiary that is engaged in big data, artificial intelligence, cloud computing and the internet of things (IoT).
LG and Macquarie PE are expected to finalize the deal in the first half of next year after signing the main contract within this year and completing procedures such as domestic and overseas business combination reports.
LG Corp. wants to sell off part of its stake in LG CNS to meet the regulations on intra-group transactions. The revised Monopoly Regulation Fair Trade Act stipulates that a company, which is more than 20 percent owned by members of the owner family, is subject to the regulations on intra-group transactions when it has a 50 percent or more stake in a subsidiary.
At the moment, LG Group chairman Koo Kwang-mo and individuals with special relations with him currently own a 46.6 percent stake in LG Corp. and the holding company in turn has an 85 percent stake in LG CNS.
Once the stake sale is completed, LG Corp.'s stake in LG CNS will drop below 50 percent, making LG Corp. and LG CNS free from controversy over intra-group transactions.
Business experts say that LG Group is likely to invest the funds from the stake sale in its new businesses such as electronics devices for automobiles, robots, AI and batteries.
LG has been conducting M&As since the inauguration of chairman Koo in June last year to restructure its business portfolio. Major acquisitions include Robostar, a Korean manufacturer of industrial robots, ZKW, an Austrian car headlamp maker, and Uniseal, a US automotive manufacturer. Among them, it cost 1.44 trillion won, the highest ever amount in the LG Group's history, to take over ZKW.
Meanwhile, if the sale of the LG Beijing Twin Tower which is currently underway is completed, LG will be able to secure much more funds to put into its future businesses. LG invested a total of US$400 million to build the LG Beijing Twin Tower in the downtown area of Beijing, China. The M&A industry estimates the sale price at 1.5 trillion won. The proceeds will be distributed to affiliates according to their equity holdings.