LG Group and Carlyle Group Inc. made a 1.5 trillion won ($1.3 billion) takeover offer for Hanaro Telecom Inc., South Korea's No. 2 high-speed Internet service provider, challenging a bid by American International Group Inc. and Newbridge Capital Ltd.
LG, Hanaro's largest shareholder, and Carlyle plan to arrange loans and spend 736 billion won on new shares to gain 51 percent of the company. Combining Hanaro with Seoul-based LG's phone units will create a ``group with all the elements to become the leading telecommunications provider in Korea,'' Michael Kim, Carlyle's Korea president, told reporters in Seoul.
LG, which includes the nation's biggest brokerage and chemicals company, enlisted Carlyle, a Washington-based private equity fund, to fend off a three-month-old bid for a company it says is key to its plans in Asia's third-largest telephone market. LG's Dacom Corp. fixed-line business and its LG Telecom Co. cell phone arm, have been losing market share to Hanaro and KT Corp.
``LG seems to be mainly concerned about the threat of their losing control of Hanaro,'' said Lee Jae Hyun, who manages 420 billion won of assets at KEB Commerz Investment Trust Management Co. in Seoul. ``I'm not really sure about whether LG has a clear plan on how to save Hanaro.''
Hanaro rejected the offer from LG and Carlyle, saying it prefers the American International and Newbridge proposal it agreed to in August. Its shareholders will vote on the American International-Newbridge proposal, which includes $500 million for new shares and a $600 million syndicated loan, on Oct. 21.
Hanaro needs to cut its 952 billion won of short-term debt and invest more to catch up with KT Corp., which holds about 50 percent of the market compared to its 27 percent.
Plan Details
LG's proposal is its second attempt to scupper a takeover of Hanaro. An earlier American International-Newbridge proposal was rejected by Hanaro's board after LG presented an alternative under which it would have bought 500 billion won of new shares from Hanaro. That plan was rejected at shareholders meeting.
Carlyle and LG's offer includes a $700 million syndicated loan arranged by adviser Citigroup Inc. LG said it has secured backing from shareholders of more than 20 percent of Hanaro.
LG, which owns 18.1 percent of Hanaro, wants to combine the company with Dacom, the country's second-largest long-distance phone carrier, LG Telecom, the No. 3 cell phone company, and Powercomm Co., which operates data networks.
The Units
Dacom, once the country's largest dial-up Internet provide, missed out on the shift to high-speed connections and lost subscribers to Hanaro and KT. The company has reported three consecutive quarterly losses.
LG Telecom, 16 percent owned by British Telecommunications Plc, has less than half the subscribers of its next biggest rival. Its profit dropped by 50 percent last year as it spent on marketing to try to win subscribers from SK Telecom Co. and KT Freetel Corp.
``Everyone knows that if Hanaro, Dacom and Powercomm continue to compete, then it will be hard for any of them to survive,'' Jung Il Jae, a vice president at LG Corp., which holds stakes in the three telecom companies as well as LG Electronics Inc., told reporters.
Hanaro and its larger rival KT have made South Korea the highest concentration of high-speed Internet use in the world after installing broadband connections in two thirds of the country's 17 million households.
Unrealistic
The bid for new Hanaro stock of 3,400 won is 6 percent higher than the rival bid, Jung Hong Shik, LG's chief of telecommunications, said in Seoul. Hanaro shares rose 3 percent to 3,800 won at the 3 p.m. close in Seoul, adding to yesterday's 10.6 percent gain. Shares in LG Corp. fell 5 percent to 9,080.
Newbridge said the LG offer doesn't provide shareholders with a full 6 percent premium on their bid as it would include a larger dilution of the company's stock.
The new offer ``is an unrealistic plan with no guarantee of making good on the conditions of fulfillment,'' said Park Byung Moo, president of Newbridge Capital Korea. He said the proposal ``is uncertain and may take months,'' while Hanaro needs about 300 billion won by the end of the year to repay debt.
American International Group and Newbridge agreed to pay $500 million for new shares and organize a $600 million syndicate loan for the company. Park said the money would be delivered to the company the day after shareholders approve their offer.
Carlyle will buy 429 billion won of the Hanaro shares, with the remainder to be acquired by LG, which will spend 200 billion won and swap stock in Dacom for the shares. LG owns 30.1 percent of Dacom.
In a five-page statement, Hanaro, which hasn't made a profit since 1998, said that LG's offer of Dacom stock would not help its cash-flow problems.
LG, Hanaro's largest shareholder, and Carlyle plan to arrange loans and spend 736 billion won on new shares to gain 51 percent of the company. Combining Hanaro with Seoul-based LG's phone units will create a ``group with all the elements to become the leading telecommunications provider in Korea,'' Michael Kim, Carlyle's Korea president, told reporters in Seoul.
LG, which includes the nation's biggest brokerage and chemicals company, enlisted Carlyle, a Washington-based private equity fund, to fend off a three-month-old bid for a company it says is key to its plans in Asia's third-largest telephone market. LG's Dacom Corp. fixed-line business and its LG Telecom Co. cell phone arm, have been losing market share to Hanaro and KT Corp.
``LG seems to be mainly concerned about the threat of their losing control of Hanaro,'' said Lee Jae Hyun, who manages 420 billion won of assets at KEB Commerz Investment Trust Management Co. in Seoul. ``I'm not really sure about whether LG has a clear plan on how to save Hanaro.''
Hanaro rejected the offer from LG and Carlyle, saying it prefers the American International and Newbridge proposal it agreed to in August. Its shareholders will vote on the American International-Newbridge proposal, which includes $500 million for new shares and a $600 million syndicated loan, on Oct. 21.
Hanaro needs to cut its 952 billion won of short-term debt and invest more to catch up with KT Corp., which holds about 50 percent of the market compared to its 27 percent.
Plan Details
LG's proposal is its second attempt to scupper a takeover of Hanaro. An earlier American International-Newbridge proposal was rejected by Hanaro's board after LG presented an alternative under which it would have bought 500 billion won of new shares from Hanaro. That plan was rejected at shareholders meeting.
Carlyle and LG's offer includes a $700 million syndicated loan arranged by adviser Citigroup Inc. LG said it has secured backing from shareholders of more than 20 percent of Hanaro.
LG, which owns 18.1 percent of Hanaro, wants to combine the company with Dacom, the country's second-largest long-distance phone carrier, LG Telecom, the No. 3 cell phone company, and Powercomm Co., which operates data networks.
The Units
Dacom, once the country's largest dial-up Internet provide, missed out on the shift to high-speed connections and lost subscribers to Hanaro and KT. The company has reported three consecutive quarterly losses.
LG Telecom, 16 percent owned by British Telecommunications Plc, has less than half the subscribers of its next biggest rival. Its profit dropped by 50 percent last year as it spent on marketing to try to win subscribers from SK Telecom Co. and KT Freetel Corp.
``Everyone knows that if Hanaro, Dacom and Powercomm continue to compete, then it will be hard for any of them to survive,'' Jung Il Jae, a vice president at LG Corp., which holds stakes in the three telecom companies as well as LG Electronics Inc., told reporters.
Hanaro and its larger rival KT have made South Korea the highest concentration of high-speed Internet use in the world after installing broadband connections in two thirds of the country's 17 million households.
Unrealistic
The bid for new Hanaro stock of 3,400 won is 6 percent higher than the rival bid, Jung Hong Shik, LG's chief of telecommunications, said in Seoul. Hanaro shares rose 3 percent to 3,800 won at the 3 p.m. close in Seoul, adding to yesterday's 10.6 percent gain. Shares in LG Corp. fell 5 percent to 9,080.
Newbridge said the LG offer doesn't provide shareholders with a full 6 percent premium on their bid as it would include a larger dilution of the company's stock.
The new offer ``is an unrealistic plan with no guarantee of making good on the conditions of fulfillment,'' said Park Byung Moo, president of Newbridge Capital Korea. He said the proposal ``is uncertain and may take months,'' while Hanaro needs about 300 billion won by the end of the year to repay debt.
American International Group and Newbridge agreed to pay $500 million for new shares and organize a $600 million syndicate loan for the company. Park said the money would be delivered to the company the day after shareholders approve their offer.
Carlyle will buy 429 billion won of the Hanaro shares, with the remainder to be acquired by LG, which will spend 200 billion won and swap stock in Dacom for the shares. LG owns 30.1 percent of Dacom.
In a five-page statement, Hanaro, which hasn't made a profit since 1998, said that LG's offer of Dacom stock would not help its cash-flow problems.
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