Light and Shadow
The domestic automobile industry is expressing concerns over Hankook Tire’s decision to take over Halla Visteon Climate Control Corp. (HVCC).
According to sources in the industry on Dec. 18, Hankook Tire, the nation’s largest tire manufacturer, has entered into a stock purchase agreement to buy stakes in HVCC from Visteon Corp., the U.S. automotive parts supplier, jointly with Hahn & Company, a South Korean private equity firm. The company will pay a total of 3.94 trillion won (US$3.6 billion), at 52,000 won (US$47.28) per share. Also, Hankook Tire will hold a 19.49 percent of its stake, while Hahn & Company will hold a 50.5 percent stake. Through the stock purchase agreement, Hankook Tire has become the second-largest shareholder of HVCC.
The company says it expects strong synergy through a merger between two companies. One factor is that HVCC is a full-line supplier of automotive thermal management solutions, which is the second largest in the world and the biggest in Korea. Another factor is that the company partners with the world’s leading vehicle manufacturers and has a customer base similar to the tire industry.
However, some companies in the industry are not pleased with the merger. In particular, Hyundai Motors has uneasy feelings about the private equity firm’s takeover.
An official from the industry said, “The burdens on stock dividends and interest are demanding. Also, due to the nature of private equity firms, which should focus more on short-term margins, there is the possibility to have some snags in research and development of HVCC’s parts. Hyundai Motors can consider an additional plan for the stable supply and demand of parts.” Hyundai Motors accounts for more than 50 percent of HVCC’s sales. Accordingly, HVCC’s sales would suffer if the company changes the supplier.
Also, there is a view that Hankook Tire’s financial state, which has been sound, can worsen if the company pushes ahead with the acquisition of KT Rental, the nation’s biggest car rental service provider, next.
Hankook Tire was spun off into a holding company in 2012, and it has been making efforts to extend its new business area. Hankook Tire (President Cho Hyun-bum) is in charge of manufacturing tires, which is the major business of the company, while its holding company, Hankook Tire Worldwide Co. (President Cho Hyun-sik) is focusing on venturing into new business areas. The company is planning to join a bid to acquire KT Rental when its bid opens next month.
As of the end of September, the total amount of cash and cashable assets that Hankook Tire and Hankook Tire Worldwide Co. possessed was 700 billion won (US$637 million) and 200 billion won (US$182 million), respectively. Since the expected undertaking price for KT Rental will be from 800 billion to 1 trillion won (US$728 to $909 billion), it seems to be inevitable for the company to get acceptance financing.
An official from the industry said, “It appears to be that expanding new business areas is Hankook Tire Chairman Cho Yang-rai’s smooth succession plan for his two sons. If he is rushing to do so without a thorough review of underlying uncertainty, problems in ownership management might come up.” The chairman’s family holds a combined stake of 74.18 percent of the company. President Cho Hyun-sik holds a 19.32 percent stake, and President Choi Hyun-bum holds a 19.31 percent stake.