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Kumho Tire founder, union fight takeover by China's Doublestar

Chinese tire maker Qingdao Doublestar's plans to effectively buy South Korea's Kumho Tire are hitting roadblocks now that the founder of the target company is opposing the deal and workers are objecting to becoming part of a Chinese group.

(Kumho Tire workers protest a proposed acquisition by a Chinese company in Seoul on April 11.)

Doublestar was picked in January by a group of Kumho creditors, including the government-backed Korea Development Bank, as the preferred bidder to purchase their roughly 40% stake in the nation's No. 2 tire maker."Immediately stop talks on the sale to a company that doesn't guarantee jobs!" some 30 protesters chanted in front of the Korea Development Bank's Seoul headquarters Tuesday. "We don't accept the sale of Kumho, which boasts advanced technology, to China," shouted officials of a nationwide labor union group to which Kumho's union belongs, along with opposition lawmakers.

South Koreans fear that a takeover of a local company by a Chinese buyer would result in job losses and cuts in research and development spending. They remember how SsangYong Motor degenerated after it was bought by a Chinese company. (It is now Indian-owned.) Kumho's acquisition by a Chinese player would "lead to a technology leak," a worried union official said.

Such concerns, however, are not the biggest reason why little progress has been made in Doublestar's acquisition process over the past three months. The main factor is the effort by Chairman Park Sam-koo of midsize conglomerate Kumho Asiana Group to block the takeover.

Park asserts he has the preferred rights to buy the Kumho shares. At the time when the creditors consortium took over management control of the troubled Kumho, they granted him the right of first refusal when eventually divesting the shares, according to Park.

Specifically, this agreement refers to an arrangement where, if the creditors agree to sell the Kumho stake to a third party, Park has the right to acquire the company as long as he can offer the same amount. Doublestar is said to have offered slightly more than $900 million.

It is not clear how Park will procure funds, and the creditors -- seeking to recover their investments quickly -- have not relented in their intention to sell the stake to Doublestar. Meanwhile, labor union officials warned that Kumho workers would go on strike in the event of a sale to an employer that does not protect jobs. They also do not like the idea of Park, the founder who was responsible for the company's troubles, buying back the tire maker.

Anti-Chinese sentiment is surging in South Korea after Beijing rolled out economic retaliation against Seoul over the deployment of an advanced U.S. missile defense system. Korea Development Bank and the other creditors face a tough decision to make.

Asian Review