Hanwha Group will file for a merger review with the Korea Fair Trade Commission for Korea Aerospace Industries (KAI)(047810) (KAI). That is because KAI equity has exceeded 15%. Under the Monopoly Regulation and Fair Trade Act (the Fair Trade Act), when holding 15% of a listed company's equity, a filing must be made with the Korea Fair Trade Commission (FTC) to undergo a review of potential restrictions on competition.
On the 10th, Hanwha Group said its KAI equity stake had expanded to 15.89%. This follows Hanwha Systems' additional purchase of 3.45% on top of the 12.44% previously disclosed on the 8th of last month. As a result, KAI equity held by Hanwha Group affiliates stands at Hanwha Aerospace 9.90%, Hanwha Systems 4.98%, and Hanwha Aerospace USA 1.01%.
Hanwha Group, which previously held 3.32% of KAI equity, has steadily increased its holdings since December last year. It invested about 2.2 trillion won over seven months, and in May disclosed a change in purpose from simple investment to participation in management. The industry is interpreting this as Hanwha Group signaling an intention to fully acquire KAI.
However, the current largest shareholder of KAI is The Export-Import Bank of Korea (26.41%), so for Hanwha Group to acquire KAI, the government must decide to privatize KAI. For this reason, Hanwha Group also said this merger review is not a procedure for mergers and acquisitions (M&A), and it is known to plan not to purchase additional KAI equity until a privatization decision is made.
Moreover, for Hanwha Group to buy more KAI equity, it must receive a determination in the Korea Fair Trade Commission (FTC)'s merger review that concerns about restricting competition are low. Otherwise, it would have to reduce its KAI equity below 15%, which could mean selling some shares.
When the Korea Fair Trade Commission (FTC) receives a merger review filing, it assesses the potential for restricting competition, classifying cases with no such potential as a simplified review and others as a general review. The commission presumes no potential restriction on competition when no control is formed through the merger, when it is a merger among affiliates, and similar cases.
A simplified review only verifies the filing details, while a general review goes through market definition, market conditions, and analysis of anticompetitive effects. The processing period is within 30 days by default, and it can be extended up to 90 days.
If it passes the merger review, Hanwha Group plans to consider participating in KAI's decision-making as the second-largest shareholder. Through this, it aims to achieve enhanced synergy via business cooperation and support for expanding global exports.