By Lee Hyo-sik
President Moon Jae-in may prevent Double Star Tires’ acquisition of Kumho Tire in response to concerns among Jeolla residents who overwhelmingly voted for him in the May 9 presidential election, analysts said Wednesday.
If he does, this could provide a boon to Kumho Asiana Group Chairman Park Sam-koo who has been struggling to take back control of the group’s tire unit. Kumho Tire runs two of its three domestic plants in the region, in Gwangju and Gokseong, South Jeolla Province.
Moon has expressed negative views toward the mid-tier Chinese tiremaker’s takeover of Kumho Tire, raising concerns over job security and adverse effects on the local economy.
In March, Moon posted a Facebook message urging the state-run Korea Development Bank (KDB) to place top priority on job security for the 3,800 Kumho Tire workers.
“It is not pleasant for Jeolla residents to witness what's been going on with Kumho Tire,” Moon wrote. “The company employs 3,800 workers at three domestic plants. We cannot afford to let the tiremaker suffer the same fate as SsangYong Motor. The top priority is to ensure job security for all Kumho employees. Whoever acquires the company, it must not close local plants or dismiss workers.”
After Shanghai Automotive Industry took over SsangYong Motor in 2004, it fired hundreds of workers to cut costs. The Chinese carmaker was also criticized for allegedly stealing SsangYong’s core technologies while not investing enough to strengthen the Korean carmaker’s competitiveness.
SsangYong was sold again to Indian carmaker Mahindra & Mahindra in 2011.
An analyst familiar with the matter expects the Moon administration will not let market economy principles alone dictate the sale of Kumho Tire. He said it will try to find a middle ground between KDB and Kumho Chairman Park, who have been engaged in a war of words.
“Given Moon’s previous remarks and his liberal political stance, the new administration will not sit idly by and let KDB sell its 42.01 percent stake in Korea’s second-largest tiremaker to Double Star under the current terms,” said the analyst who asked not to be named.
“The new government will attach a range of strings to the sales contract. For instance, it will require Double Star to guarantee job security for 3,800 workers at Kumho’s domestic plants, investment to strengthen its corporate competitiveness, and a pledge not steal its technologies,” he said. “Double Star may withdraw its takeover bid if these preconditions are too harsh. If so, this would be good news for Kumho chief Park.”
KDB and Double Star are engaged in sales negotiations to iron out their differences on the detailed terms of a stock purchase agreement (SPA) to finalize the deal over the next five months. In March, both sides signed the SPA under which the Chinese company would acquire the 42.01 percent stake for 955 billion won ($840 million).
Kumho Chairman Park decided not to exercise his buyback right, blaming the bank for not allowing him to form a consortium.
To derail the ongoing negotiations, the chairman said Kumho Industrial, controlled by him, will not allow Double Star to continue using the Kumho brand.
According to KDB, the Chinese tiremaker is not interested in buying Kumho Tire if it cannot use the Kumho trademark.
The state-run bank agreed the Chinese company could use the Kumho trademark for 20 years if it pays 0.2 percent of Kumho Tire’s sales as brand royalties.
However, Park has said Kumho Industrial never agreed to permit Double Star to use the trademark, calling the SPA legally flawed and urging creditors to hold another bid.