Stalking Horse, select the right buyer first and proceed with competitive bidding… Stability guarantee and competition inducement effect
▲Ssangyong Motor Pyeongtaek factory main gate (Photo courtesy of Ssangyong Motor)
Ssangyong Motor, which is looking for a new owner, will start the resale process this week. As the sale is pursued in the ‘stalking horse’ method, the takeover battle is expected to unfold as a two-way battle between KG Group and SsangBul Group. The stalking horse is a method in which a prospective purchaser (preferred purchaser) is selected and a separate open competitive bidding is conducted, and if the bid fails, the purchaser is given the right to purchase.
According to the auto industry on the 10th, it is known that Ssangyong Motor and EY Hanyoung Accounting Corporation, the lead for the sale, have settled their internal position to proceed with the sale through a stalking hose method. To this end, Ssangyong Motor will begin the process of selecting a prospective takeover person within this week with the permission of the Seoul Rehabilitation Court. After negotiating the acquisition amount and conditions with the prospective acquisition partner, the ‘conditional merger and acquisition (M&A) investment contract’ is signed and then the main bid is conducted again.
If, during the bidding process, a new prospective buyer offers an amount higher than that specified in the contingent investment contract, the contingent contract will be canceled and the acquirer will be changed. If no one wants to write a higher price than the prospective purchaser, the existing conditional contract is maintained.
Ssangyong Motor chose the stalking hose method to ensure the stability of the sale. The stalking hose can be sold without a new bidder because the main bid is conducted with a buyer first. It also has the advantage of inducing competition and raising conditions for sale. As the rehabilitation plan has to be approved by the court by October 15, it is also aimed at securing a buyer first and speeding up the sale. Earlier, Eastar Jet also adopted the stalking hose method and welcomed Seongjeong, a real estate developer, as a new acquirer last year.
Candidates to participate in the stalking horse are expected to be KG Group and SsangBul Group, and in fact, the takeover battle is expected to develop into a two-way battle. Private equity funds and other companies are also interested in the acquisition, but the two groups are said to be the most active.
In terms of financial power, it is evaluated that KG Group is ahead of its competitors. KG Group is a conglomerate group of conglomerates that rose to the 63rd position in the business world by acquiring Inesis, KFC Korea, and Dongbu Steel (currently KG Steel).
Last year, KG Chemical, the holding company of the group, recorded KRW 4.93 trillion in sales and KRW 467.1 billion in operating profit. As of the end of last year, it also has cash equivalents of about 370 billion won. KG Group is also preparing to raise additional funds by forming a consortium with Cactus Private Equity (PE), which it cooperated with during the acquisition of Dongbu Steel.
Ssangyong Group formed a consortium centered on Kwanglim, a special vehicle manufacturing affiliate, to acquire Ssangyong Motor. However, considering the group’s sales volume and recent losses, it is evaluated that the financial power is somewhat lacking compared to the KG group.
Last year, Kwanglim’s sales were 188.4 billion won and operating profit was 11.2 billion won. The combined sales of SsangBall Group affiliates, including entertainment companies IOK (24.3 billion won), Nanos (51.4 billion won), and Vivian (187.8 billion won), which are expected to participate in the consortium to acquire Ssangyong Motor together with Kwanglim, last year amounted to 400 billion won.
Kwanglim said, “We have completed the preparations to finance the acquisition of Ssangyong Motor worth 450 billion won.
Both companies are confident of raising funds for the acquisition, but considering the normalization process and debt, huge amounts of funds are required. If debt and operating funds are included, the acquisition of Ssangyong Motor is expected to require at least 1.5 trillion won. For normalization after the acquisition, about 300 billion won of operating capital is required every year.