Final Verdict' on Hyundai-LG Semiconductor Swap Due Today
02/25,16:55
It has been a few months coming but the ''final verdict'' on the acquisition of 100 percent of LG Semicon by Hyundai Electronics Industries now appears imminent.
According to officials close to the deal, a six-man committee put together by LG and Hyundai is expected to submit what it feels is the proper price at wh ch Hyundai should take over LG Semicon's shares.
The committee, comprising representatives from three Korean credit evaluation companies and Merrill Lynch and Goldman Sachs, have heard arguments from both companies early this week.
Hyundai and LG handed their final proposals, reportedly with the blessing of the chairman of LG and Hyundai, but they remained too far apart to engage in any further negotiations, the sources said.
''LG has slashed its proposed price in an apparent bid to hammer out a compromise but it is still considerably higher than what Hyundai feels is a fair price for LG Semicon,'' one industry analyst said.
The respective proposals could not be confirmed but Hyundai is reportedly not willing to go any higher than 1.2 trillion won while LG is still insisting on a compensation in the upwards of 4.5 trillion won.
The main reason why the two companies are so far apart on price is that their methods of putting a value on LG Semicon is rather different with Hyundai utilizing the discounted cash flow technique.
On the other hand, LG is using a combination of DCF and comparable market price (CMP) formats, comparing its value to that of Micron Technology, an American memory device maker company with one of the highest profit indices.
'' Just because we are far apart on price does not mean that we have to meet h lf way and it is not likely that the committee will render a recommendation that it designed to bring about a compromise,'' one Hyundai official said.
Senior publicist Lee Kwang-seok said the main purpose of merging the two companies is to increase international competitiveness, and giving LG excessive compensation can only set the newly merged company back.
He went on to say that Hyundai's calculation is based on the current value of the 91 million-odd shares that LG's subsidiaries hold, which was trading at 10.800 won yesterday morning, plus about 20 percent in future value.
While Hyundai feels that the future value of LG Semicon merits a compensation f just 20 percent, LG's initial calculations show that its shares should reflect a value of at least 70,000 won.
''The reality of the matter is that Korean stock is currently excessively undervalued. Plus, the prospects of the market for dynamic random access memory chips is exceptionally bright,'' one LG official said.
The positions of the two companies may be very different but they share the same fate, a fate that will lead to their signing of a final contract by March 7th. If they fail, the company or companies responsible for the breakdown will face stern action from creditors, including the suspension of new loans.
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