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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