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LG Chem is moving to sell the base film separator business of its Hungarian subsidiary. The separator industry is facing oversupply and a shift in technological structure, and the move is seen as a strategy to streamline low-margin basic materials and reshape the business portfolio around high value-added products.
According to the investment banking (IB) industry on the 16th, LG Chem is pushing to sell the base film separator business within the joint venture for secondary-battery separators, LG Chem Hungary Battery Separator Kft., located in Hungary. Without selecting a separate sell-side advisor, LG Chem is said to be conducting its own outreach (tapping) to potential buyers.
The Hungarian subsidiary is a joint venture established by LG Chem and Japan-based Toray to target the European battery market. After the two corporations resolved in Oct. 2021 to set up a separator joint venture, they established the entity in Hungary in Jun. 2022. To meet rising demand for electric-vehicle batteries in Europe, they planned to invest more than 1 trillion won in stages through 2028 to expand production capacity.
At the time of the joint venture, the equity structure was 50-50 and it operated under a co-chief executive officer (CEO) system. Lee Yu-min, head of LG Chem's Europe Business Promotion TFT, and Yoshimura Ikuo, head of Toray's Hungarian subsidiary, served as the inaugural co-CEOs. About 30 months later, in Dec. 2024, LG Chem and Toray planned to adjust equity to LG Chem 70% and Toray 30%, considering a long-term shift to an LG Chem-centered structure.
However, as Toray adjusted its electric-vehicle battery materials strategy, it decided to exit the joint venture, and LG Chem acquired all of Toray's equity and shifted to a sole-operation system. In addition to the previously planned acquisition of a 20% stake, LG Chem bought the remaining 30% and, at the end of last year, made the joint venture a wholly owned subsidiary. The transaction amount was set at about 280 billion won. Compared with investing more than 430 billion won to secure a 50% equity stake when the joint venture was established, Toray effectively "cut its losses" on the Hungarian subsidiary's equity.
The base film separator that LG Chem seeks to sell is a business that produces the base film for battery separators. Battery separators are a key material that blocks electrical contact between the cathode and anode while allowing lithium-ion transport, and are considered components that determine the safety and performance of electric-vehicle batteries.
Recently, however, the separator industry has seen profitability squeezed by global supply expansion and intensifying competition. In particular, as Chinese companies move aggressively to add capacity, price competition has intensified in the commodity separator market. The slowing growth of the electric-vehicle market and battery makers' pacing of investments are also weighing on materials companies' profitability.
The technological structure is also changing rapidly. As demand grows for high energy density and fast charging in electric-vehicle batteries, the market is shifting toward high-performance products such as ceramic-coated separators and ultra-thin separators. In contrast, base film separators have relatively low added value and fall into an area where price competition among companies is intensifying.
Initially, in the joint venture, Toray produced separator base film and LG Chem supplied finished goods after a coating process. But with Toray, which held the base film technology, exiting the business, the previous division of roles has effectively been dismantled.
The trend of battery materials companies cutting basic materials production and shifting their portfolios to high-performance products also appears to have influenced this decision. As margins on commodity products are rapidly shrinking due to capacity additions by Chinese companies, the outlook is that the company aims to wind down low-profit businesses and reshape its portfolio around high value-added products.