Takeover Deal Likely to Fall Apart
HDC Hyundai Development has reiterated its demand that creditors and Kumho Industrial allow it to undertake another round of due diligence on Asiana Airlines. This means that HDC Hyundai Development has virtually rejected an Aug. 3 ultimatum from Korea Development Bank (KDB) that it needs to show its willingness to take over Asiana Airlines by Aug. 11.
HDC Hyundai Development said in a statement on Aug. 6, "For about eight months since the takeover contract was signed on Dec. 27, 2019, we have been fully committed to the acquisition process, but we have no choice but to question the true intention of the sellers, Kumho Industry and Asiana Airlines, as they put the blame for nonfulfillment of the contract on us." It said it could not accept the seller’s demand for additional deposits to guarantee contract implementation, as it is not specified in the contract.
HDC Hyundai Development reiterated its previous position and complained about face-to-face negotiations. "We have to pay 46 billion won in financial cost per year for the 1.76 trillion won we have raised, including loans from financial institutions and a capital increase, to pay 250 billion in down payment and finance the acquisition deal,” HDC Hyundai Development said. "It is only natural that negotiations on an M&A deal worth 2.5 trillion won should be carried out in writing to ensure accuracy and transparency."
It asked if it is a really responsible act for the seller to pass the responsibility for the nonfulfillment of the contract to the potential buyer without accepting its request for another round of due diligence. It noted that changes occurred in the financial statements of Asiana Airlines, which made it impossible for HDC Hyundai Development to proceed to implement the contract that was signed before the outbreak the novel coronavirus crisis. It claimed that the alterations in the financial statements violate the basic premise of a contract that all the statements and guarantees in the contract should be true. Some experts interpreted this comment as a sign that HDC Hyundai Development will file a lawsuit to have the down payment refunded when the deal falls through.
When asked if it was an answer to KDB's final notice, an HDC Hyundai Development official said, "It is our general position to ask the sellers to consider allowing us to carry out second due diligence."
Despite KDB’s ultimatum, HDC Hyundai Development has not changed its previous position. Thus, the sale of Asiana Airlines to HDC Hyundai Development has become more likely to fall apart. If and when the deal falls through, Asiana Airlines is likely to be run under creditor-led management. In that case, KDB is expected to tap into the 40-trillion-won Basic Industry Stabilization Fund in order to normalize Asiana Airlines management.