Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Hanon Systems bid highlights SK's ties with Hahn & Co., Ford
Hanon Systems factory in Pyeongtaek, Gyeonggi Province / Korea Times photo by Shim Hyun-chul
By Park Jae-hyuk
LG still seen as most probable buyer of auto parts supplier
By Park Jae-hyuk
SK Group, which has been mentioned as a potential bidder for Hanon Systems, is in focus as observers wonder if the conglomerate will gain the upper hand over another probable bidder, LG Group. SK has close ties to the auto parts supplier's key stakeholders ― Hanon's owner Hahn & Company and Ford, a major customer.
Hahn & Co., a private equity firm (PEF) that holds a 50.5 percent stake in Hanon, recently had the underwriters of the deal ― Morgan Stanley and Evercore ― send an sales memorandum to potential buyers here and overseas for the preliminary bid to take place in June. Given that Hanon's market capitalization exceeds 8 trillion won ($7 billion), a source familiar with the issue said the memorandum was sent only to the “big players,” including foreign automotive component manufacturers.
While LG, SK and Halla Group, which established Hanon's predecessor Halla Climate Control (HCC), are said to have received the memorandum, Hankook Tire & Technology, which owns a 19.49 percent stake in Hanon as its second-largest shareholder, will stay out of the bid as the tiremaker plans to unload its holdings next month by using its tag-along right.
At this moment, LG is considered as the most probable buyer, because of the conglomerate's continuous efforts to reinforce its automotive businesses as the group is rapidly reshaping its revenue streams focusing on vehicle batteries and automotive components. Hanon had acquired Magna's Fluid Pressure & Controls business in 2019. Considering LG's decision to create a joint venture with Magna, the partnership can be seen as a favorable factor for it to win the bid.
SK, however, may turn the tables as it's been maintaining a solid relationship with Hahn & Co. through multiple sizable deals. The conglomerate and the PEF had signed a 205 billion won contract in 2017 for the latter's acquisition of a 50.1 percent stake in SK Encar, a used car retailer rebranded as K Car. A year later, Hahn & Co. acquired a combined 27.5 percent stake in SK D&D, a real estate developer, for 230 billion won from SK Discovery Vice Chairman Chey Chang-won and SK Gas. It also spent 1.5 trillion won on the acquisition of SK Shipping a month later.
Last year, Hahn & Co. signed an agreement to take over SK Chemicals' bioenergy business for 382.5 billion won. The bioenergy firm, which produces and sells biodiesel and bio-heavy fuel oil, was rebranded as SK Eco Prime.
After witnessing the close relationship between the conglomerate and the PEF, market observers expect their cooperation to continue when there is any large-scale deals involving one of them. The observers said Hahn & Co. helped SK avoid antitrust regulations and SK helped Hahn & Co. pursue “bolt-on” acquisitions, which refer to acquisitions of smaller companies in the same line of business.
Also, the announcement of a joint venture being created by Ford and SK Innovation, called “BlueOvalSK,” is cited as another significant factor. Ford, the second-largest customer of Hanon after Hyundai Motor Group (HMG), had jointly established Hanon's predecessor, HCC, in 1986 with Mando Machinery, which was a Halla affiliate at that time.
After Halla sold its entire stake to Ford's subsidiary, Visteon, during the 1998 Asian financial crisis, the U.S. carmaker integrated its thermal system businesses into Halla Visteon Climate Control (HVCC) and sold it to a consortium of Hahn & Co. and Hankook Tire in 2015. Hanon CEO Sung Min-suk also built his automotive industry career at Ford, Visteon and HVCC.
But there are some possibilities that a foreign company could acquire Hanon as some believe the company is “attractive enough” to Volkswagen and General Motors, both of which lack superior thermal management system companies in their countries. They mentioned global carmakers, battery makers and big companies in China and India as candidates, but a Chinese company's acquisition may cause a backlash from HMG, the largest buyer of Hanon's products.
Industry sources said German auto parts maker Continental and several foreign PEFs, including KKR, TPG, Bain Capital and the Carlyle Group, are also interested in the deal.