Hyosung TNC plans to hold a board meeting as early as this week to resolve the acquisition of the special gas division of Hyosung Chemical. It is reported that they are moving toward acquiring 100% equity of the special gas division without a financial investor.
According to the investment banking (IB) industry on the 11th, Hyosung TNC has decided to hold a board meeting this week or next week. Hyosung TNC has been reviewing a proposal for the acquisition of management rights since the sale of Hyosung Chemical's special gas division fell through last month, and they made the decision in less than a month.
Earlier, Hyosung Chemical had selected the IMM Private Equity-Stick Investment consortium as the preferred negotiator for the sale of the special gas division in July, but announced that the negotiations collapsed on the 20th of this month. Since then, industry speculation has suggested that Hyosung TNC, an affiliate, would acquire the special gas division instead of a financial investor, which the group has essentially acknowledged.
The sale of the special gas division of Hyosung Chemical is likely to proceed via the business transfer method that was previously pursued. Hyosung Chemical is expected to establish a special purpose company (SPC) to transfer the special gas business and sell equity of this SPC. If Hyosung Chemical directly transfers the business, a special resolution from the shareholders' meeting is required under Article 374 of the Commercial Act, but if it involves buying and selling equity of the corporation, only a board resolution is necessary. If it is an acquisition of existing shares rather than new shares, even a board resolution may not be needed.
The industry anticipates that if Hyosung TNC acquires the special gas division of Hyosung Chemical, it may create synergies. Hyosung TNC, as a textile and trading firm, operates a special gas business in China. Although their cash assets are only 98.7 billion won, there are reactions indicating sufficient financial capacity since their current assets (assets that can be liquidated within a year) exceed 2 trillion won.
However, a negative sentiment regarding the acquisition of the special gas division has formed among Hyosung TNC shareholders, making it important for the two companies to buy and sell the division at a 'reasonable price.' The estimated EBITDA (earnings before interest, taxes, depreciation, and amortization) of Hyosung Chemical's special gas division for this year is reported to be around 45 billion won. This figure represents a significant downward adjustment compared to the 1.3 trillion won proposed by the consortium during the preferred negotiator selection phase, which applied a multiple of 20 to an EBITDA of 65 billion won. Subsequently, the two sides continued negotiations around the 1 trillion won mark but ultimately failed to reach an agreement and retracted the sales contract (SPA) due to differing expectations.