12-25-98 Hyundai to control joint chip company; LG rejects decision, clouding the merger
koreaherald.co.kr
By Yoo Cheong-mo Staff reporter
Hyundai Electronics Industries Co. was named as winner of the drawn-out battle with LG
Semicon Co. to hold a controlling stake of their proposed joint semiconductor company by a
U.S. evaluating agency yesterday. LG Semicon, however, immediately refused to accept the
judgement, casting a dark cloud over their eventual consolidation into the world's
second-largest memory chip maker.
Announcing the results of its month-long evaluation of the two semiconductor makers, the
U.S. consultant, Arthur D. Little, said that Hyundai earned better grades than LG in almost all
of the 15 criteria, including technology, production, marketing and finances. "It has been
concluded that Hyundai is better qualified to take the controlling 70-percent stake in the
merged concern with LG," said Jung Taesoo, managing director of ADL Korea. Emphasizing
the need for a merger, Jung said, "Future technology investments will be extremely expensive,
leaving second-tier firms, like Hyundai and LG, vulnerable to downturns."
Hyundai welcomed the ADL assessment, while LG immediately declared an intent to disobey
the results, dimming the prospect for their union. "The ADL report lacked the necessary basic
factors for a fair evaluation," Koo Bon-joon, president of LG Semicon, said in a statement.
"There has been no agreement with LG on the evaluation factors and criteria. As the process
has been carried out in onesided manner, the report can not be considered a responsible
opinion," he said.
The Hyundai-LG merger, touted as the jewel of the government-initiated corporate
restructuring drive, or "big deal," is supposed to create the world's second-largest maker of
dynamic random access memory, or DRAM, chips with a global market share of 15.7
percent, after Samsung Electronics Co. But analysts forecast that LG, the nation's
fourth-largest conglomerate, would seek an independent survival for its semiconductor
operations. Actually, LG has expressed an adamant will to stick to the chip business, insisting
that semiconductors are indispensable to its long-term strategy to specialize in electronics.
Meanwhile, LG Semicon's decision to reject the merger deal and go it alone will push the
drawn-out semiconductor big deal into a wholly new phase, as the government reiterated its
willingness to take harsh financial sanctions against the firm. "Suspension of new credit and
withdrawal of existing loans will be among the punitive measures," said a spokesman at the
Financial Supervisory Commission. Despite the hardline stance, however, many industry
analysts are skeptical that regulators will actually carry out their avowed sanctions to the
extent of liquidating the giant chip maker.
"The government is sure to feel heavy burdens in dealing a fatal blow to LG Semicon, which
employs about 10,000 employees and has an estimated 6 trillion won ($5 billion) in bank
loans," an official at the Federation of Korean Industries. "Moreover, the latest recovery in
global chip prices will largely restrict the government's attempt at punishment." At the same
time, however, the analysts do not rule out the possibility of the government resorting to an
unexpectedly tough steps.
"As seen in the recent dismissal of the information-communication minister, President Kim and
his aides have signaled a strong intent to push through the big deals," a watcher said. Lately,
some economists at even state-run think tanks raised negative views over the proposed
semiconductor merger, but were immediately hushed by the hardline reformers. Regardless of
the contents of the financial sanctions, the looming confrontations between the government
and LG will have enormous impact on the second round of big deals expected to take place
next year, the analysts said. |
