Kumho Asiana’s LBO Takeover on Korea Express
- Kumho Asiana’s LBO Takeover on Korea Express
- Cho, Seong-Ho
- leveraged buyouts; LBO; valuation; exchangeable bonds
- Issue Date
- Series/Report no.
- KDI Working Paper Series;09-24
- While correct valuation of a target is critical for a successful takeover bid, in leveraged
buyouts (LBOs), another crucial factor is to form an appropriate financing program to
fulfill the LBO transaction. In some countries like Korea where financial systems are
not well developed, LBO acquisitions are not easily possible because of lack of
available financing alternatives. It may be the reason why we have not seen many LBO
cases in Korea since its M&A market liberalization in 1998.
By examining the case of Kumho Asiana’s LBO takeover on Korea Express, this paper
explores two important issues in the field of LBO. First, was the bid of 4.1 trillion won
reasonable? Second, how well was it structured to finance the deal? Among the
acquisition amount of 4.1 trillion won, more than 50 percent or 2.4 trillion won was
financed through commercial borrowings such as bank loans and exchangeable bonds
(XBs). Furthermore, this paper examines Kumho Asiana’s exit strategy to recover from
the heavy debt loading. The actual net cash paid for the acquisition (3.4 trillion won for
Kumho) was effectively reduced via this exit plan (1.5 trillion via capital reduction and
1.2 trillion via XBs).
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