Hyosung's textile and trading affiliate, Hyosung TNC, has decided to acquire the specialty gas division of another affiliate, Hyosung Chemical, for 920 billion won, leading some to evaluate the acquisition price as expensive. Previously, Hyosung attempted to sell the profitable specialty gas division to a private equity fund to reduce Hyosung Chemical's liability but failed. Although Hyosung TNC agreed to acquire at a lower price than the one negotiated with the private equity fund, there are claims that this still amounts to an expensive buy. From Hyosung's perspective, with the situation preventing a higher external valuation, retaining the specialty gas division internally has reportedly benefited the group.
According to the business community on the 13th, Hyosung TNC has begun measures to secure acquisition funding through the use of account receivables and borrowing following the decision to acquire Hyosung Chemical's specialty gas division. The day before, the board of directors of Hyosung TNC announced it had decided to acquire Hyosung Chemical's specialty gas business for 920 billion won.
Hyosung Chemical changed its direction to sell its specialty gas division to its affiliate, Hyosung TNC, after a sale to the IMM Private Equity and Stick Investment consortium failed last month. The sale price of 920 billion won applies a multiple of 20 times the estimated EBITDA (earnings before interest, taxes, depreciation, and amortization) of around 46 billion won projected for Hyosung Chemical's specialty gas business this year, as calculated by capital markets. Considering that the average multiple for foreign industrial specialty gas manufacturers, like Linde in the U.S., is 18 times and even lower for domestic companies, there are evaluations that assigned a high corporate value.
When selecting preferred bidders in July, the IMM-Stick consortium offered 1.3 trillion won. However, negotiations broke down as the consortium lowered its acquisition price due to a slowdown in the semiconductor market. Capital markets projected the anticipated selling price would drop to the 800 billion won range. Samdeok Accounting Corporation, responsible for assessing the appropriateness of Hyosung TNC's sales price, stated that as of the end of September, the value of Hyosung Chemical's specialty gas division was calculated to be between 831.8 billion won and 1.031 trillion won.
A source in the capital market noted, "Hyosung was forced to sell the specialty gas unit of Hyosung Chemical, which is in a worse state due to the petrochemical market, to reduce its liability. The transfer to an affiliate at a price not significantly different from what could be received externally appears to be a favorable outcome for Hyosung."
Hyosung TNC explained that since it operates a specialty gas business in China, it can achieve synergy through the acquisition of Hyosung Chemical's specialty gas division. The specialty gas division of Hyosung Chemical has an annual production capacity of 8,000 tons in Ulsan and Ok-san, while Hyosung TNC has a production capacity of 3,500 tons in Quzhou, China. Combining the two could elevate the production capacity to the second largest in the world, according to Hyosung TNC.
However, some minority shareholders of Hyosung TNC are expressing their objections. They argue that the company took on a financially urgent affiliate's division based on an overly optimistic outlook, considering the uncertainty surrounding when and how the semiconductor market may change. Samdeok Accounting Corporation estimated that the annual revenue of Hyosung Chemical's specialty gas division, which was 168.4 billion won last year, would increase to 518.3 billion won by 2029.
There are also concerns regarding the uncertainty of Hyosung TNC's funding for the acquisition. As of the end of September, Hyosung TNC's cash-like assets were about 98.7 billion won. While Hyosung TNC stated it plans to secure acquisition funding using liquid assets such as account receivables, there are projections that turning about 1 trillion won of account receivables into cash immediately would be difficult. In capital markets, it is assumed that borrowing for acquisition financing will be inevitable. In this case, there are forecasts that the financial soundness of Hyosung TNC could deteriorate due to increased interest burdens.
Among minority shareholders, there were opinions that the stock buyback price for dissenting shareholders proposed by Hyosung TNC (220,671.3 won per share) is too low. They argue it is inappropriate to set the price based on the drastic decline in stock price after Hyosung TNC revealed its considerations for acquiring Hyosung Chemical's specialty gas business. Hyosung TNC's stock price was over 300,000 won in early last month but fell to the 190,000 won range by the end of the month following the disclosure. On the 13th, the stock rose over 6% to close at 240,450 won, which is higher than the claim exercising price.