LG, Hyundai go to the wire on DRAM merger

Arbitrators called in to determine fair price for LG assets

Surprise, surprise. Hyundai and LG Electronics have failed to meet their self- imposed Feb 20 deadline for agreeing a price for LG’s DRAM business. Now a six–strong group of arbitrators will come up with a fair price for LG’s semiconductor assets. IT will report back on February 28, enabling the deal to conclude on March 7, according to an unnamed panel member, quoted in the Korean Herald. The two companies say they will abide by the panel's decision. LG Electronics wants $3.4 billion for its assets. while Hyundai does not want to pay more than $900 million. It is in the interest of respective shareholders that LG gets the best price for its assets, while Hyundai pays as little as it can get away with. But this gap is ridiculous. The Korean government should have imposed an either- or clause on the negotiations. There is little love lost between the two companies, and LG resents the forced disposal of its DRAM business, under the Korean Government-imposed "realignment" of Chaebol operations. More sense would have been got out of the two companies if they had known that the panel would plump for either LG’s price or Hyundai. A “fair price” could factor in more than LG’s net asset valuation. But it is difficult to estimate the worth of LG withdrawal from the endemic over-capacity of the DRAM industry. We suspect that Hyundai’s valuation is the more realistic of the two -- never mind the book value of LG’s DRAM assets. There is not exactly a buyers market for DRAM plants right now… witness Siemens’ failure to find a buyer for its modern plant on Tyneside. Hyundai faces a huge bill for post-merger consolidation and it will find it very difficult to retain the combined market share held with LG pre-merger. LG uses different manufacturing technology, so it will take time for Hyundai to reap economies of scale. And, given Hyundai’s union-unfriendly reputation, the company faces tough times ahead with LG-inherited staff. ®

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