Qingdao Doublestar paid a high price for the acquisition, but why did South Korea's Kumho still refuse to comply?

After overcoming many hurdles in its acquisition of South Korea's Kumho Tire, Qingdao Doublestar (000599, SZ) is currently stuck in a stalemate.

In early May, Kumho Tire's parent company, Kumho Asiana Group, said it disagreed with the agreement reached between Qingdao Doublestar and the Korea Development Bank (KDB), the representative of Kumho Tire's creditors, and would not allow Qingdao Doublestar to use the Kumho Tire trademark.

In response to this, a public relations person from Qingdao Doublestar told the reporter from the "Daily Economic News" that Qingdao Doublestar has no new response to this issue. Currently, the company's latest news on the acquisition is still "Qingdao Doublestar becomes the final purchaser of Kumho Tire" released on April 24.

The relevant person in charge of Kumho Tire (China) Marketing Department said that the acquisition was negotiated by the Korean headquarters and he was not clear about the details. Currently, the business in China has not been affected.

Qingdao Doublestar's acquisition of Kumho Tire has always attracted much attention in the industry. In 2015, ChemChina acquired Italian tire company Pirelli for 7 billion euros, which became a symbol of the growing strength of Chinese tire companies. If Qingdao Doublestar's acquisition of South Korea's Kumho Tire is successful, it will become the second largest acquisition of overseas companies by Chinese tire companies. However, judging from the current situation, there is still a long way to go before the two sides reach an agreement.

Screenshot of Qingdao Doublestar's 2016 financial report

Qingdao Doublestar wins big with small investment?

In early 2016, there were rumors that South Korea's nine major banks (creditors holding 42.01% of Kumho Tire's shares) wanted to sell Kumho's shares. Companies including India's Apollo, Japan's Yokohama Tire, Qingdao Doublestar, etc. were on the bidding list. Among them, Kumho Tire also has a cooperative relationship with Japan's Yokohama Tire.

In March this year, Qingdao Doublestar won the competition and signed a "Share Purchase and Sale Agreement" with the seller's representative, Korea Development Bank. On the premise that the agreed preconditions are met, it acquired 66.36 million shares of Kumho Tire held by Korea Development Bank and other sellers represented by it for 955 billion won (approximately 5.9 billion yuan), accounting for 42.01% of the total number of Kumho Tire's issued shares.

Qingdao Doublestar said in a statement on April 24: "Even if we have control over Kumho Tire, we will maintain Kumho Tire's independent operation and actively promote the renewal of contracts between Kumho Tire and existing employees."

According to the Nikkei Shimbun, data showed that in 2015, in the global market, Kumho Tire's share was 1.7%, ranking 14th, and Qingdao Doublestar's share was 0.5%, ranking 34th; if the acquisition is successful, Qingdao Doublestar's ranking will rise to tenth, surpassing Zhongce Rubber Group to become China's largest tire company.

According to the 2016 annual report released by Qingdao Doublestar on April 28, last year, the company achieved operating income of 4.928 billion yuan, a year-on-year increase of 64.6%, and realized a net profit attributable to shareholders of listed companies of 95.3389 million yuan, a year-on-year increase of 55.6%. Net profit has achieved substantial growth for three consecutive years.

Qingdao Doublestar's stock price trend in the past month

Kumho Tire has been losing money for years

Although Qingdao Doublestar performed well last year and has reached an agreement with the seller's representative, as things stand now, it is clearly reluctant to acquire Kumho Tire.

As early as last year, when Kumho Tire's largest creditor decided to sell its 42% stake in Kumho Tire, Kumho Asiana Group Chairman Park Sam-kyu had already taken action to raise funds through relevant channels to repurchase the company, but until the expiration of his right of first refusal, Park Sam-kyu was unable to raise the deposit. Kumho Tire's proposal to refuse Qingdao Doublestar from using its brand trademark has brought the negotiations to a deadlock.

The Nikkei reported that Kumho Tire began to gradually expand globally around 2000, but strategic mistakes including overinvestment led the company into a cash crisis. In 2009, during the economic crisis, the company sold most of its shares to banks to avoid bankruptcy.

But Kumho Tire's crisis has not been resolved. Data shows that in 2015, Kumho Tire's operating income was 3 trillion won (about 18.22 billion yuan) and its net loss was 67.4 billion won (about 400 million yuan). According to Yonhap News Agency, in the first three quarters of 2016, Kumho Tire's sales fell 4.4% year-on-year to 2.16 trillion won (about 13.11 billion yuan), and its loss reached 54.9 billion won (about 330 million yuan).

Since the re-refining problem was exposed by CCTV's "3.15" Gala in 2011, Kumho Tire has faced some negative news in the Chinese market. Although Kumho Tire has not released its relevant operating data in China, Qingdao Doublestar said in a statement, "Kumho China is one of Kumho's most problematic markets worldwide. After acquiring Kumho Tire, Doublestar will give full play to Doublestar's position, advantages and influence in the Chinese market, as well as its experience in corporate transformation and intelligent manufacturing, to restore Kumho China's production and operations to normal as soon as possible, and strive to build Kumho Tire into a high-end brand in the Chinese market."

As the acquisition is now full of complications, it is still unpredictable how the acquisition will end. However, it can be seen that the problems faced by Kumho Tire have not been solved. Even if the equity acquisition is successful, there will still be challenges in turning losses into profits in the future.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.