LG stays out of Hanon Systems bid
Carlyle, Valeo, Mahle to compete for Korean auto parts supplier
LG Electronics has decided not to participate in a preliminary bid to acquire a controlling stake in Hanon Systems, citing its excessively high price, an LG official told The Korea Times, Tuesday.
Halla Group, which established Hanon’s predecessor, Halla Climate Control (HCC), also decided not to participate in the bid, amid lingering concerns over the financial burdens it could face after the acquisition.
“Because of the high price, LG Electronics decided not to participate in the bidding process,” the official said.
In contrast, the Carlyle Group,
Germany’s Mahle and France’s Valeo decided to enter the competition, turning the bidding for the Korean firm into a battle among foreign companies.
LG had been considered as the most probable buyer of the auto parts supplier due to its electronics arm’s continuous efforts to reinforce its automotive businesses. It had been expected to join hands with Carlyle and to hire Lee & Ko as its legal adviser for the deal.
The Korean conglomerate has reshaped its revenue streams rapidly, focusing on vehicle batteries and automotive components. Its decision to create a joint venture with Magna had been viewed as a favorable factor in winning the bid. Hanon had acquired Magna’s Fluid Pressure & Controls business in 2019.
Valeo, the world’s third-largest automotive thermal system company, following Japan’s Denso and Hanon, is set to form a consortium with Bain Capital for the acquisition deal. JPMorgan and Shin & Kim have been mentioned as the French firm’s financial and legal advisers, respectively.
Mahle, the world’s fourth-largest automotive thermal system company, which acquired the thermal management division of America’s Delphi in 2015, is said to have hired Deutsche Securities and Yulchon as its financial and legal advisers, respectively. It is also expected to join hands with a global private equity firm.
It is unclear whether other potential bidders, such as SK Group or German auto parts maker Continental, have decided to participate in the preliminary bid.
According to sources familiar with this issue, it will take a few more days for the sellers to finalize the list of preliminary bidders, because a specific deadline has not been set for the international competition.
“Some potential buyers want more time to form consortiums and make decisions on the prices to offer,” one of the sources said.
The bidders will compete to acquire a 50.5-percent stake in Hanon from Hahn & Company and an additional 19.49 percent from Hankook Tire & Technology. The tiremaker was once regarded as a potential buyer, but it decided eventually against making a bid.
Although the price of Hanon’s stock dropped 4.07 percent during Tuesday’s session, the 69.99-percent stake put up for sale is still worth over 6.5 trillion won ($5.7 billion).
Due to the exceptionally high price, the underwriters of the deal — Morgan Stanley and Evercore — sent a sales memorandum in May only to the “big players,” including the nation’s leading conglomerates and foreign automotive component manufacturers.
At this moment, the sellers, underwriters and potential buyers have kept a low profile.
Once the sale of Hanon is over, the company will be held by a new owner, six years after a consortium of Hahn & Company and Hankook Tire took over a 69.99-percent stake in Halla Visteon Climate Control (HVCC) for 3.8 trillion won, from Visteon in the U.S.
Back then, Hahn & Company paid 2.75 trillion won, while Hankook Tire paid 1.06 trillion won.
Hanon was first established in 1986 as HCC, a joint venture between Ford and Mando Machinery, which was a Halla affiliate at that time. After Halla sold its entire stake to Ford’s subsidiary, Visteon, during the 1998 Asian financial crisis, the U.S. carmaker integrated its thermal system businesses into HVCC and sold it to the Hahn & Company-led consortium in 2015.