BKL Advises Korea Exchange Bank and Financial Institutions on US$4.5 Billion Sale of Stake in Hyundai E&C to Hyundai Motors Group
BKL advised Korea Exchange Bank and eight other financial institutions in their joint sale of a controlling 34.88% stake in Hyundai Engineering & Construction (Hyundai E&C), Korea’s largest construction firm, to the Hyundai Motors Group for KRW 4.96 trillion (about US$4.5 billion). The final payment and closing of the transaction on April 1, 2011 culminates an auction process started in June 2010 that turned into a fierce contest for Hyundai E&C between the Hyundai Motors Group (which also includes Kia Motors) and the Hyundai Group (which includes Hyundai Merchant Marine), rival successors of the former Hyundai conglomerate.
BKL advised the sellers group throughout the planning and conduct of the auction and sale. In addition, BKL handled the sellers’ pivotal defense against a suit instituted in mid-process by the Hyundai Group, which, having been first picked as preferred bidder and then rejected, sought to block negotiation of the deal with Hyundai Motors.
The deal closing on April 1 concludes a noteworthy chapter in Korean business annals. A cornerstone of the Hyundai conglomerate that started dispersing in the 1997-1998 Asian Financial Crisis, Hyundai E&C had been controlled by its lenders since 2001, when it entered a creditors’ workout process. (BKL were also the creditors’ main counsel in the workout, till its conclusion in 2006.) A debt-equity swap gave creditors originally an 80% stake, of which there remained the 34.88% portion, ample for control. Bidders for the stake soon narrowed to the Hyundai Motors Group and the Hyundai Group, led by rival factions of Hyundai’s founding family. Hyundai E&C was widely seen to have special symbolic value for each side, and certainly it held significance for the Hyundai Group given Hyundai E&C’s 8% stake in group flagship Hyundai Merchant Marine.
At first the Hyundai Group outbid the larger and widely favored Hyundai Motors Group, with a KRW 5.51 trillion offer (about US$5 billion), and signed an MOU with the sellers. As questions about financing for the bid persisted, the sellers terminated that MOU in December 2010, and signed a new one with Hyundai Motors. In December 2010, the Hyundai Group filed suit to block these steps. The sellers prevailed, however, with BKL successfully arguing the case at the initial trial and on the appeal by the Hyundai Group. The appellate decision, issued on February 15, 2011, cleared the way for the Hyundai Motors Group.
The BKL advisory team on the deal was led by partners Dong Woo Seo and Sky Yang, and included Kyu Sang Chung, Young Chan Yeo and Eun Joo Kang, of our M&A and Securities practice groups. For the litigation opposite the Hyundai Group, the BKL team included Young Bo Noh, Wee Soo Han, Dong Wook Kang and
Kyu Ho Lee.