Lawmaker questions validity of M&A deals by PEFs

Rep. Ryu Ho-jeong of the Justice Party questions Trade Minister Moon Sung-wook during a National Assembly audit in Seoul, Tuesday. Joint Press Corps-Yonhap

Trade ministry fails to specify plans for how to block outflow of key tech

By Lee Min-hyung

A lawmaker has urged the government to strengthen its supervision of local private equity firms (PEF) pushing to sell off Korean tech firms to overseas rivals, amid concerns over possible technology outflow.

Rep. Ryu Ho-jeong of the minor social democratic Justice Party took issue with Hahn & Company's move to sell Hanon Systems to overseas PEFs or rival auto part suppliers. Hanon Systems is one of the world's biggest automotive air conditioning system vendors. Hahn & Company holds a 50.5 percent stake in Hanon Systems.

Under the mega deal, a 70 percent stake in Hanon Systems ― currently owned by Hahn & Company and Hankook Tire & Technology ― is up for sale, with a valuation expected to reach as high as 8 trillion won ($6.72 billion).

A shortlist of interested buyers included global PEFs and overseas auto parts suppliers ― such as Carlyle Group, Bain Capital and Valeo.

The lawmaker argued the government should take more proactive measures to block the sale of the Korean tech firm to overseas companies, as this will result in outflow of Korea's state-of-the-art technologies and relevant patents held by Hanon Systems.

“If Hanon Systems is sold to overseas PEFs or competitors in the same industry, the government should take appropriate steps to prevent potential leakage of national wealth or patented technologies,” Ryu said Wednesday during the National Assembly's annual audit.

Ryu also called for the government to enhance monitoring of Korean PEFs' involvement in sales of companies in key industries, citing MBK Partners' sales of Doosan Machine Tools to DTR Automotive.

“If a company seeks to excessively recoup investment by selling an acquired firm to others that have little to do with its business, this will only result in the collapse of regional economies and mass layoffs of employees there,” the lawmaker said.

As blue-chip companies increasingly become a target of speculation by PEFs, the government needs to come up with specific protection measures, particularly in the areas of materials, components and equipment, according to Ryu.

Trade Minister Moon Sung-wook, however, failed to specify the government's efforts to prevent further such controversial sales.

“As Hanon Systems holds a national core technology related with hydrogen-fueled vehicles, the Ministry of Trade, Industry and Energy will make a detailed assessment on whether to grant approvals for sales of such key technologies,” Moon said, declining to specify further on how to prevent outflow of Korean firms' key technologies.

The union of Hanon Systems is particularly raising its voice over concerns of the firm's possible sale to overseas part suppliers or PEFs, claiming that most of its core technologies and patents are at risk of being leaked to foreign firms.

Above all, the government should protect Hanon Systems' technologies for hydrogen fuel cell vehicles under an industry technology protection act, according to the union.

It also argues that sales of such technologies to overseas entities should require government approval.

Despite the repeated pressure from opposition politicians and the union, it remains to be seen whether the government will be able to engage in the deals and help block Korean firms' technology outflow.

The trade minister's silence on a relevant regulation during the Assembly audit also raises questions on whether the government is willing to step in and take timely actions to protect Hanon Systems' technology.

The investment banking industry expects foreign capital to finalize the deal to take over the controlling stake in Hanon Systems. The company is considered a top-tier supplier of automotive thermal systems for use in electric and internal combustion vehicles.

Hanon is partnering with a group of global carmakers, such as Hyundai Motor, Ford and Volkswagen. The Korean firm also has manufacturing facilities all around the world in areas such as the United States, China and Europe.

Final bidding for the deal is expected to take place as early as this month, but there stands an ample chance that the schedule could be delayed further.