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The Asiana Airlines sale was eventually canceled. Kumho Industrial announced on the 11th that the merger and acquisition (M&A) of Asiana Airlines and HDC Hyundai Industrial Development has finally collapsed. It has been approximately 10 months since HDC Hyundai Development Company and the Mirae Asset Daewoo consortium signed a share purchase agreement (SPA). Asiana Airlines now enters the creditor management system representing KDB Development Bank.
Creditors are expected to begin normalizing “ownerless” Asiana Airlines through capital conversion and free downsizing for large shareholders. To stabilize the financial structure and normalize business management, a key industry stabilization fund of 2 trillion won is also transfused. Strictly speaking, it is not nationalized, but promoted to sell again after normalization, but it can be said that a ‘national airline’ will be created for a short time in 50 years after Korean Air was privatized in 1969.
HDC Hyundai Development Company (currently produced) has backed out of the acquisition after preparing for a 250 billion won down payment, which appears to be the biggest impact from Corona 19, which caused an unprecedented recession in the aviation industry. On the other hand, some say that recent sanctions from the Fair Trade Commission had a decisive effect on dissolving the sale. Unexpected losses are said to have occurred, giving Hyundai Industrial Development a good excuse to break the contract.
Did the FTC sanctions break the Asiana deal?
Last month, the Fair Trade Commission announced that it would impose a fine of 32 billion won on Kumho Asiana Group’s charges of inadequate support for onboard meals. Among these, seven subsidiaries, including Asiana Airlines, Air Busan and Air Seoul, accounted for 8.3 billion won, causing unexpected losses.
For this reason, some outlets have even criticized the FTC for not considering the sale of the KDB and making a mistake. Could it be that Musan’s merger and acquisition (M&A) liability was worth 2.5 trillion won to the FTC? In conclusion, it is highly unlikely.
It can be said that company mergers and acquisitions (M&A) are similar to jewelry auctions in which only a limited number of people participate. The seller conducts due diligence under the preliminary tender by selecting eligible candidates, ‘short lists’, who are considered to have a high probability of taking over from candidates who have revealed their intention to take over. As if a rare gem could not be presented for evaluation, it only shows the financial business status of the company, including the ledgers, only to the nominated candidates for acquisition.
It was approximately in October of last year that the FTC Corporate Group Office sent a review report to the Kumho Asiana Group, which is the head of the prosecution. This fact was first reported to the media on October 22 and, unusually, the story came from the financial investment industry, not the FTC or the industry.
At the time, qualified Asiana Airlines candidates were conducting due diligence on the company, and during the due diligence process, the content of the review report, including opinions on the allegations against President Park Sam-koo, flowed. A sales-side official said: “Hyundai Industrial Development and others have grasped the content of the FTC’s examination report as well as other claims during the due diligence process.” “I was fully aware of it.”
This potential loss is also reflected in the share purchase agreement (SPA) signed by Hyundai Development Company in December last year. At the time, Hyundai Development Company and Kumho Group were unable to reduce their disagreements about the limit for damages incurred after the contract, but they eventually set it at the 32 billion won level. It is enough to stay even after paying the Fair Trade Commission fine.
It is difficult to say that there are other reasons besides fines. This is because the corrective order issued by the Fair Trade Commission along with a fine is a ‘ban order’ and does not violate the business of Asiana Airlines. Although the Asiana Airlines subsidiary has been prosecuted, the fines are expected to be less than the penalty even if the sentence is upheld.
Did you have termination of Hyundai’s Industrial Development contract in mind from the time you requested the ‘review’?
In the financial investment industry and legal circles, there were many opinions that the deal was actually wrong from the moment Hyundai Industrial Development requested a new inspection. The need for a new inspection is based on the premise that the existing due diligence is wrong, because it looks like a message with a down payment demand in mind.
Hyundai Industrial Development delayed the acquisition of the Asiana Airlines shares indefinitely in April, stating that “the prerequisites to close the transaction were not met” and, in late July, demanded a re-inspection due to issues such as poor financial structure and poor accounting management. I did. Whether or not these ‘business termination prerequisites’ are met can be a problem in future down payment lawsuits.
In the case of Hanwha’s loss of the Daewoo Shipbuilding & Marine Engineering acquisition, which bears many similarities to this case, the ‘due diligence’ card can be seen as a necessary stone to recover the advance.
In 2008, Hanwha Group signed a contract to take over Daewoo Shipbuilding & Marine Engineering, then canceled it and filed a lawsuit against the Korea Development Bank requesting the return of the deposit. As a result of the nine-year lawsuit, the Seoul Court ruled that some of these prerequisites were not met with penalties on repayment, and that the Korea Development Bank should return 126 billion won and back interest to Hanwha’s down payment of 315 billion.
Hanwha argued that the shipbuilding industry was deteriorating due to the global financial crisis. The Supreme Court overturned the results of the first and second trials, saying: “Although Hanwha paid a huge performance deposit, we did not have the opportunity to conduct verification due diligence.” “It is unfairly excessive to confiscate the entire fulfillment deposit (advance).”
Due diligence is expected to be a major issue in Asiana Airlines’ down payment refund lawsuit. However, there is a disagreement on whether to place Daewoo Shipbuilding & Marine Engineering, which was highly likely to result in sudden losses, and Asiana Airlines, whose performance deteriorated due to Corona 19, due to the deterioration of the shipbuilding industry.
Ultimately, Corona 19 broke the sale.
The reason Hyundai Industrial Development eventually quit Asiana Airlines appears to be the most plausible effect of Corona 19, bad news unprecedented in the history of the aviation industry. Like Corona 19, which was not present in December last year, when the contract was signed, the value of Asiana Airlines also decreased, because it is not possible to buy the company for the money originally contracted. It is similar to Hanwha Group, which decided to buy Daewoo Shipbuilding & Marine Engineering and gave up shortly after the shipbuilding industry peaked before the global financial crisis erupted.
In particular, Asiana Deal is a structure in which funds must be invested to normalize the company while buying old shares, but there is a possibility that you will have to spend much more money than initially expected with Corona 19. Sang-Eun made conditions unconventional, such as an urgent reduction in the sale price last month, but it seems difficult to reverse the decision.
In the end, what remains is an unknown liability workshop covering the owner of 250 billion won in advance. Asiana Airlines, which started as a newcomer in a country with a low proportion of domestic flights and has grown into an exceptionally global airline, mobilized as a financing line for the group and went on sale.
