Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Chinese companies are coming up against all kinds of hurdles to their once buoyant overseas acquisition binge, from protectionism to Beijing's reining in of capital outflows. One to add to that list, as Qingdao Doublestar Co. may soon find out: South Korean chaebol reluctant to part with prized assets.

Shandong-based Doublestar has been picked as the preferred bidder for a stake in Kumho Tire Co., which is held by creditors of Korea's second-largest tiremaker, people familiar with the matter said Tuesday. Doublestar has offered about 1 trillion won ($857 million) for the 42 percent stake in Kumho Tire, and a decision on the transaction is expected after approval from a majority of creditors later this week.

Sounds like good news, right? And yet, stock in Kumho Tire tumbled as much as 4.8 percent, although it regained some of those losses Wednesday morning. Since the sale process began back in September, the shares are down almost 20 percent.

Cheaper by the Day
Shares in Kumho Tire have been falling ever since creditors put their 42 percent stake on the block last September
Source: Bloomberg

It's not as if Kumho Tire's creditors or the tiremaker itself -- the world's 11th largest by sales -- has landed a bad deal in Doublestar. Instead, it seems the share-price decline has been sparked by the possibility Kumho Asiana Group Chairman Park Sam-koo, who holds the first right of refusal on the deal, may block it. There's speculation he may come out with his own bid within the 45-day time frame creditors have given. Park has said several times that he's keen to regain management control of the company, which fell to banks after Kumho Asiana embarked on a debt-fueled spending spree.

An unsuccessful bid would be a shame for both parties. As part of Doublestar, Kumho Tire would be better placed to take on domestic rival Hankook Tire Co., and a white knight with deep Chinese pockets would help stem losses. China is also the world's biggest auto market, with 23.9 million cars, sports utility and multipurpose vehicles sold last year, according to data released last week by the China Passenger Car Association.

Doublestar, meanwhile, is on the hunt for a higher-quality product, treading the same path as China National Chemical Corp., which bought Pirelli & C. SpA in 2015. Buying Kumho Tire would also raise its standing domestically and using the company's manufacturing plants outside of China as a base, Doublestar could even evade anti-dumping tariffs should such levies be imposed by President-elect Donald Trump.

Thick Tread
Kumho Tire was the the world's equal 11th biggest by sales in 2015
Source: Bloomberg

Should it eventuate, the investment would be one of the largest that China has made in South Korea, up there with Anbang Insurance Group Co.'s $1-billion-plus purchase of Tongyang Life Insurance Co. in 2015. According to Nomura Holdings Inc., Park doesn't have the funds to buy the entire stake himself. Analysts at the Japanese firm note he could, however, set up a special purpose vehicle and get other investors to help out.

Whether this chaebol will emerge victorious over its Chinese suitor is unclear, but on behalf of shareholders, Park should think twice about putting a spanner in the works.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net