Doublestar-Kumho merger deal falls flat

Updated 2017-09-18 09:30:42 Global Times

Experts said on Sunday that proposed mergers between companies based in China and South Korea are facing a chill from strains in the bilateral relationship over the latter's installment of the U.S. anti-missile Terminal High Altitude Area Defense (THAAD) system.

The comments followed a move by Qingdao-based tire manufacturer Doublestar Group to withdraw from a plan to acquire South Korea's Kumho Tire Co.

On Thursday, Qingdao Doublestar Co, the Shenzhen-listed arm of Qingdao Doublestar, said in a stock exchange filing that it had terminated a proposed deal concerning the acquisition of a stake of more than 42 percent in South Korean tiremaker Kumho via a merger fund it set up in December last year with capital of 900 million yuan (7.36 million).

The company said as it terminated the agreement with the seller without any responsibility, the company will continue to look for consolidation opportunities in the tire sector and pursue its global plan.

Since negotiations began in March, the proposed cross-border merger had faced pressure from Kumho's labor union, debtors, and the South Korean media, according to a report on news site on Saturday.

The report said Doublestar cut its proposed bid price twice, as Kumho continued to post losses since the first half of the year.

Doublestar declined to comment on Sunday, referring to its exchange filing.

Wu Chenhui, a Beijing-based independent industry analyst, told the Global Times on Sunday that at the company level, the aborted merger was further confirmation that the diplomatic strains between the two countries over THAAD will affect economic activity in such sectors as consumer goods and industrial products.

"In the wake of the deployment of the U.S. THAAD system, the Sino-South Korea relationship has suffered, with increasing dissatisfaction among South Koreans toward China, and on the other hand, Chinese residents calling for boycotts against South Korean goods," a professor at Renmin University of China surnamed Li told the Global Times on Sunday.

The strained bilateral ties partly killed the Kumho deal, Li noted.

Li Tianguo, a researcher at the Chinese Academy of Social Sciences (CASS), said that Chinese acquisitions in South Korea had focused on the manufacturing sector, and these had proved rather difficult, due to the relocation and welfare issues of large numbers of blue-collar workers.

"Resistance from workers and unions usually rises from the inevitable job cuts and reduced benefits because of the target company's poor performance, and these are often hyped by the media and politicians," Li from CASS told the Global Times on Sunday.

In 2006, Shanghai-based automaker SAIC Motor came under pressure when it tried to buy a stake in Ssangyong Motor, a South Korean sport utility vehicle maker.

"In the SAIC-Ssangyong deal, South Korean workers went on a 49-day strike with the union hyping technology leaks, as the former proposed to axe 986 jobs," Li from CASS said.

Union opposition also played an important part in the failure of the Doublestar-Kumho deal, Li from CASS said.

"If the Chinese company cannot cut employees and undertake consolidation after a merger, the merger will become a burden for the Chinese buyer," he said.

Wu said that in the first half of this year, China imposed stricter requirements for domestic companies undertaking overseas mergers and acquisitions, and this curbed buyers' appetites for potential deals.

"Companies are now required to take full responsibility if the merger does not go well," Wu said.

For both sides, these deals could be a good bargain, experts said. "It provides a chance for a Chinese company to learn from its South Korean counterpart, elevate competitiveness, and promote industry upgrading," Li from Renmin University said.

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