An attempted billion-dollar takeover of Hanaro Telecom by a private equity consortium led by American International Group (AIG) and Newbridge Capital may end up on the deal room floor, due to Korean conglomerate LG Group’s attempt to quash the deal.
According to published reports, debt-riddled Hanaro, a fixed-line telecom and broadband Internet operator, could care less which firm injects the capital, as long as it’s done soon. Hanaro owes $85 million (100 billion won) in loans and bonds, which are becoming due this year.
The AIG-Newbridge team plans to put in $1.1 billion for a 40% stake in Hanaro, through a $500 million stock purchase and $600 million in loans. LG, Hanaro’s largest stakeholder, recently upped its ownership to 18.07% from 13%, in an attempt to shoot down the AIG-Newbridge deal at a scheduled shareholder meeting Oct. 21.
But LG isn’t only relying on just a no’ vote to turn down the foreign takeover attempt. Reports say LG has been amassing a war chest larger than the $1.1 billion AIG’s team has assembled, which will probably cause what Hanaro can least afford-a delay in receiving a cash infusion.
LG is also relying on patriotism to stop the AIG-Newbridge takeover. While the AIG team plans to call the shots if they get hold of Hanaro, LG vows Koreans will remain at the top if they gain control. Both these factors are huge, and if this becomes a game of one upsmanship, with each group outbidding the other, the only loser will be Hanaro- evolution in the broadband world occurs at light speed, a few extra months of sitting around waiting for a private equity handout could have a devastating effect on the telecom company.