Asia Times: ANALYSIS: 'Big Deal' hangover for Hyundai, LG



	April 27, 1999	atimes.com

The Koreas

ANALYSIS: 'Big Deal' hangover for Hyundai, LG
By Suh Hae-sung

SEOUL - Nobody won but nobody lost either. Thus neither party in South Korea's landmark consolidation case in the semiconductor industry seems completely happy.

The Hyundai and LG Groups, which had haggled over the takeover price of LG Semicon for three months, finally agreed on 2.56 trillion won ($2.1 billion) and signed a memorandum Friday to complete the deal by June 30.

Wearing a big smile is the government, which helped organize this first highlight of the so-called ''Big Deals'', or business swaps and mergers among the top five conglomerates to resolve overcapacity and redundant investments. Pity that the main heroes - Hyundai and LG - cannot join in the celebration.

Instead of glowing over its soon-to-be rank of the world's leading producer of memory chips, Hyundai is complaining that it gave too many concessions and cannot be certain of big gains out of the costly consolidation.

LG is equally vocal about its discontent over the deal. The group had originally demanded more than 6 trillion won for its semiconductor unit before finally bowing to pressure and lowering its price to 3.5 trillion won early this month.

That didn't satisfy Hyundai, which stood firm on its initial offer of 1.2 trillion to 1.5 trillion won. An impatient government then fingered Hyundai as the slowest in corporate restructuring, and the group met LG halfway by agreeing to pay 2.56 trillion won.

Both sides say they could have reached a better deal if the merger was discussed secretly like most corporate mergers, instead of being publicized and coached at every step.But economists and industry watchers generally agree that negotiations could have dragged on forever and even fail if the deal was left solely to the two.

The ball is now in Hyundai's court and it has a lot of cleaning up to do.Debt-to-equity ratios of Hyundai Electronics and LG Semicon reached 935 percent and 617 percent as of June 1998. Hyundai has to lower the enormous debt amount and at the same time pay LG.It has a one-year grace period to pay 1 trillion won of LG Semicon's price after delivering 1.56 trillion won soon after the contract signing.

The government has ordered the top five conglomerates to reduce their debt ratios to below 200 percent by the end of the year.

Hyundai Electronics' creditor banks are already mapping out ways to help the company. Debt write-offs and debt swaps for equity investment could give such efforts a strong start.It is uncertain, however, whether banks can actually pull this off. The United States is saying debt conversions to equity in the deal are subsidies that violate international trade laws.

Hyundai has to combine production lines and overhaul overseas networks. It has overlapping facilities both at home and abroad.

The problem of dealing with LG employees is also a sticky matter. Hyundai and LG said they will leave the employment matter off the memorandum for more discussions before the final contract.Hyundai has agreed to guarantee jobs for LG employees until the end of next year and offer 10 months in salary for those choosing early retirement.

LG Semicon employees are now threatening to go on strike if Hyundai does not provide job guarantees for three years after the takeover and 13 months in salary for early retirees.

With its takeover, Hyundai Electronics becomes the world's largest producer of semiconductors with a combined global share of 20.8 percent, exceeding that of Samsung Electronics with 20.1 percent. It will also exceed Samsung in capacity.But industry experts say size is not everything in the chip sector. Samsung still boasts more advanced technology and it is unclear how well Hyundai will maximize the synergistic effect from the merger to truly become the world leader.

(Asia Pulse/Yonhap)

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