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Hankook Tire's Hanon Systems takeover bid drifts apart

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Hankook Tire R&D center in Daejeon / Courtesy of Hankook Tire
Hankook Tire R&D center in Daejeon / Courtesy of Hankook Tire

By Nam Hyun-woo

Hankook Technology Group Vice Chairman Cho Hyun-sik
Hankook Technology Group Vice Chairman Cho Hyun-sik
Hankook Tire & Technology's bid to acquire leading vehicle air conditioning system maker Hanon Systems is falling apart, as the company's financial soundness is deteriorating in the competitive tire market, industry officials said Wednesday.

Given Hanon Systems' market presence as the world No. 2 vehicle air conditioning system manufacturer, Hankook Tire is keeping its eye on it.

According to Hankook Tire's parent arm, Hankook Technology Group, its Vice Chairman Cho Hyun-sik recently demanded employees apply strategies on how to further strengthen its "core businesses" of making, distributing and selling tires. Also, the senior executive stressed the group will have to focus on acquisitions and investments related to tires.

The announcement is in stark contrast with the company's 2019 representation of diversifying its portfolio after the company changed its name from Hankook Tire to Hankook Tire & Technology and sought various businesses related to auto parts.

Hankook Tire's operating profit was 1.03 trillion won in 2014, but declined to 885 billion won in 2015. After rising in 2016 to 1.1 trillion won, its profitability backpedaled again to 793.4 billion won in 2017 and 702.7 billion won in 2018. Analysts expect the company to report an operating profit of 542 billion won for 2019, down 22.9 percent year-on-year.

The downward profit trend appears mostly due the rapid rise of its Chinese rivals. Also, the country's leading tire manufacturer is under pressure domestically as the country's largest carmakers Hyundai Motor and Kia Motor opt for tires from top-tier brands such as Michelin and Pirelli.

"Global tire demand is continuing to slow down," DB Financial Investment analyst Kim Pyung-mo said. "Global demand for replacement equipment tires is also slowing except for the North American region."

Hankook Tire is No. 2 shareholder of Hanon System with a 19.49 percent stake, following private equity firm Hahn and Company with 50.5 percent. The two sides acquired Hanon Systems in June 2015 and signed an agreement in which Hankook Tire was given priority if Hahn and Company decided to sell its stake.

Since this right expires in June 2021, it was earlier thought that Hankook Tire would soon complete a takeover of Hanon Systems.

"Not only Hankook Tire but also other tire makers are experiencing an aggravated business environment, while the company's leaders are on trial," an industry official said on condition of anonymity. "Under such circumstances, it seems uncertain whether the company can withstand the financial burden."

Currently, Hankook Tire Vice Chairman Cho and his younger brother and CEO Hyun-bum are under trial for alleged embezzlement. Of the two, the younger Cho, who has been calling for the company to diversify its portfolio, was detained.

A Hankook Tire spokesman admitted there has been little progress in the takeover talks.

"We are trying to enhance our main tire business, but it is not true that we have given up on acquisitions," the spokesman said. "Our priority is currently tires, and we believe the rest should come after the tire business."


Nam Hyun-woo namhw@koreatimes.co.kr


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