Kumho Tire Co. and its union have tentatively agreed on a plan by creditors to sell the debt-ridden tiremaker to China's Qingdao Doublestar Co., with a union vote on the deal scheduled for Sunday, the company said Friday.
"On Saturday, Kumho Tire's union leaders will give a briefing on their talks with the company over the Doublestar sale plan to the company's workers before the vote takes place," a company spokesman said over the phone.
The sudden twist comes after the government urged the union to agree to the plan to turn over management to Doublestar by the end of the day or face court receivership next month.
Early this month, Kumho Tire's creditors led by the state-run Korea Development Bank (KDB) announced that they aim to sell Kumho Tire to Doublestar as it is the "only option" to turn the debt-ridden tiremaker around. They asked Kumho Tire and its union to forge an agreement on the sale plan by March 30.
But the union had strongly objected to such a move, arguing that the acquisition by the Chinese tiremaker could lead to massive layoffs and the stealing of technologies, as was the case with SAIC Motor Corp.'s takeover of SsangYong Motor Co. more than a decade ago.
In a joint statement released Friday, Finance Minister Kim Dong-yeon and other ministers called on the union to accept the creditors' sale plan to avoid being placed under court receivership early next month.
"For Kumho Tire, it is the only possible option to attract a large investment (from Doublestar) and improve the tiremaker's deteriorating financial status for a turnaround. The company does not have any cash to pay the debt which will mature on Monday," the statement said.
Kumho Tire said it will face maturing debt worth 27 billion won (US$25 million), and it has a whopping 2.4 trillion won in debt owed to domestic financial institutions.
Main creditor KDB has recently asked Kumho Tire's 3,100-member union to vote on whether to agree to the sale plan. Some 1,500 office employees at the tiremaker also called on assembly line workers to cast a vote to avoid court receivership.
The union's decision to hold a vote was hailed by government officials, including Finance Minister Kim and KDB Chairman Lee Dong-gull, who had a meeting with Kumho's union leaders in Gwangju, about 330 kilometers southwest of Seoul, on Friday.
The union is required to provide the results of the vote by Sunday, as the company plans to hold a board meeting to decide whether to file for court receivership on Monday, according to a KDB spokesman.
If the union vote leads to the acceptance of the sale plan, creditors will inject fresh funds of 200 billion won in Kumho Tire, while rolling over maturing debt and lowering interest rates for outstanding debt.
On the other hand, if the vote is rejected and Kumho Tire is placed under court receivership, the government warned, there will be no guarantees on job security for the company's 3,100 union workers. Policymakers added that fallout on the economy could be substantial as well.
Kumho Tire workers are widely expected to accept the sale plan, as its going concern value stands at 460 billion won, far short of the firm's liquidation value of 1 trillion won, according to an accounting firm's due diligence on it.
Meanwhile, the tiremaker's President and Chief Risk Officer Han Yong-sung, told reporters after a shareholders meeting held earlier in the day that the company has finished preparations to file for a court receivership on Monday if no agreement was reached with the union.
As for the union's concerns of technology theft and layoffs following acquisition, the government vowed to take all possible measures to prevent theft and job cuts from happening.
In its proposal, Doublestar said it will invest 646.3 billion won in Kumho Tire's new shares, which will allow the Chinese tiremaker to become the biggest shareholder, with a stake of 45 percent. The Chinese truck and bus tiremaker said it will guarantee job security for existing union workers for three years after taking control of management.
If the rights issue is successful, KDB-led creditors will collectively own a 23.1 percent stake in Kumho Tire.
In March last year, Doublestar signed an initial 955 billion won contract with the KDB-led creditors to buy a 42.01 percent stake in the Korean tiremaker.
The deal, however, was scrapped in September when creditors rejected Doublestar's demand to cut the purchase price by 16 percent to 800 billion won, citing deteriorating earnings. (Yonhap)