S. Korea’s Hyundai Plans Takeover of Kia

From Reuters

Hyundai Group said Sunday it plans to take over financially troubled Kia Motors Corp. to boost South Korean car makers’ competitiveness in the global market.

“In order to create an auto manufacturer which has an annual production capacity of 2.5 million and is globally competitive, it is better to merge firms rather than increase production of existing firms, and Hyundai is the only company which can take over Kia and normalize operations,” said an internal Hyundai report that was distributed to the media.

Some industry sources questioned Hyundai’s sudden announcement, saying it was testing the waters for a takeover in light of recent government comments.


A few days earlier, President Kim Dae Jung said that the country’s troubled firms should be allowed to sink. “The nation is being smothered as companies that should fail are not allowed to go out of business. . . . The issue of ailing companies should be concluded quickly,” Kim said Thursday, referring to Kia Group, Halla Group and Hanbo Steel, which have shown no signs of recovery.

Kia Motors, the flagship of South Korea’s previously eighth-largest conglomerate, Kia Group, filed for court receivership in October as it teetered on the brink of failure. Kia still awaits a ruling by the court, but its assets have been frozen.

The firm’s woes played a pivotal role in sending the world’s 11th-largest economy into a tailspin, and South Korea is now being bailed out by a $60-billion package from the International Monetary Fund.

The government has said it would make state-run Korea Development Bank the largest shareholder of Kia Motors by converting debt for shares, and said KDB would ultimately sell its stake to a third party or in the public market.

Industry analysts said Samsung Motors, which recently launched its business, could be seeking equity cooperation with Ford to jointly take over Kia.

U.S. automotive giant Ford Motor Co., along with its Japanese subsidiary, Mazda Motor Corp., are Kia’s largest shareholders with a combined stake of 17%.

Hyundai said it would negotiate with Kia creditors for a 10- to 20-year delay on repayment of debt principal.