LG Group is likely to take control of South Korea’s second telecoms operator Dacom as part of a package deal to hand over its chip-making subsidiary LG Semicon to Hyundai Group, according to reports in the local media.
It has long been suspected the government would be prepared to break its earlier rules limiting LG’s shareholding in Dacom if this would help broker the chip deal although officials are denying the two are connected. At the same time, they are saying LG may be allowed to gain majority control. Since LG appeared to throw in the towel and agree to let Hyundai Electronics Industries take over LG Semicon lock, stock and barrel, the two main stumbling blocks to an agreement have always been publicized as fair treatment of the LG workforce and the hard-cash price Hyundai is prepared to pay.
However it now appears that if LG can end up as one of the dominant players in the local telecoms market it will be flexible on how payment is structured, and the workforce problem has already been solved. The LG Group is supposed to only be allowed to hold a maximum 5% stake in Dacom as part of its agreement with the Government for a PCS cell phone license. Although it is officially listed as the third-largest shareholder in Dacom with a 4.87% stake, it is believed by local analysts to actually control more than 30% though subsidiaries and affiliates.
What is interesting, and what appears to make a deal possible, is the identity of the other two largest shareholders. The second biggest is Hyundai with 5.25% so, providing the government gives the green light, there is little problem in putting those shares into the LG Semicon compensation package. The largest shareholder is Samsung, the country’s biggest semiconductor maker, with 15.94%. Samsung is itself involved in major restructuring, with the swap of its automobile subsidiary for Daewoo’s electronics division — and with a major breakthrough in negotiations having been just been announced. Samsung officials have suddenly started telling anybody who will listen that the group is no longer interested in Dacom as it has decided to concentrate on other sectors than telecoms.
The Korea Herald quoted a senior Samsung official as saying: Dacom has clearly been a factor in the process of the merger talks. And LG is likely to take over Hyundai’s telecom shares. He then went on to repeat the line about not being interested in Dacom any more saying: As a matter of fact, we are more interested in the Korea Heavy Industries and Construction Corp and Korea Gas Corp, which are expected to be privatized soon. So with both the Hyundai and Samsung shares on the table, LG could become Dacom’s majority shareholder if its gets the blessing of the Ministry of Information and Communication and, in the process, achieve its ambition of becoming a powerful integrated telecom service provider able to compete with state-run Korea Telecom and the dominant mobile market player SK Telecom.
Information Vice Minister Ahn Byung-yub said the ministry will positively consider freeing LG from its share-limiting obligation if either LG or Dacom shareholders decide to ask. However he tried to distance the decision from the ongoing merger talks saying: We will not approach the matter only to help solve the deadlocked merger talks, as is viewed by outsiders. Of the analysts expressing an opinion on the matter, nobody believed him. One other potential problem is Dacom’s ongoing negotiations with Japan’s NTT which is reportedly likely to purchase a 20% stake in the carrier for $240m. LG is said to be strongly opposed to the deal which might threaten its own ability to get majority control
