Hankook Tire's acquisition of Hanon Systems clouded by uncertainty

Hanon Systems' Gyeongju plant in North Gyeongsang Province / Courtesy of Hanon Systems

Uncertainties are growing over Hankook Tire & Technology’s plans to take over a controlling stake in Hanon Systems from Hahn & Company for 1.73 trillion won ($1.27 billion).

The tire maker and the private equity firm (PEF) reached an agreement on May 3, in which Hankook Tire will acquire a 25 percent stake in the automotive thermal system company from the PEF. Additionally, the tire maker will obtain another 12.2 percent stake through a rights offering.

However, Hankook Tire has not made the payment for the paid-in capital increase, which was due by Aug. 3 or three business days after the deal’s prerequisites were met.

Hana Securities analyst Song Sun-jae said Friday that Hankook Tire declined to comment on details about its ongoing negotiations with the seller, during a conference call on second-quarter earnings, which was held exclusively for securities analysts and institutional investors a day before.

“It is difficult for us to mention schedules for the talks,” a Hankook Tire official was quoted as saying by the analyst.

Some directors at Hankook Tire’s board are reportedly skeptical about the deal, as the stock price of Hanon Systems fell from 6,490 won on May 3 to 3,800 won on Friday, amid deteriorating profits.

Hanon Systems recently focused on managing heat for electric vehicles (EVs), so the drop in global demand for EVs made the company suffer a 50.1 percent year-on-year decline in its second-quarter operating profit.

Additionally, its militant union has been another headache for Hankook Tire.

Unionized workers at Hanon Systems previously hindered Hankook Tire’s inspection of their factories, calling for labor participation in the negotiations between the buyer and the seller.

The labor union is said to be asking the buyer to guarantee jobs and compensate workers.

The Hana Securities analyst, however, said that Hanon Systems emphasized that it is inappropriate to say that Hankook Tire’s payment has been “delayed.”

“One of the prerequisites for the deal is getting approvals for the merger from each country’s antitrust regulators, which takes longer than expected,” a Hanon Systems official said during a conference call on second-quarter earnings, Thursday, according to the analyst.

“As far as we know, the proposed merger got an approval in Europe today.”

The European Commission said Wednesday (local time) that it has approved the merger, as the transaction will not raise competition concerns.

In 2021, Hahn & Co. failed to sell its controlling stake in Hanon Systems, although the PEF hired Morgan Stanley and Evercore as advisers and multiple foreign companies participated in a bid for the acquisition.

Hahn & Co. invested 2.75 trillion won in 2015 to take control of Hanon Systems.

PEFs generally pursue their exit strategies five years after taking over their portfolio companies.