[Reporter's Notebook] Difficulties ahead for Dayou

[Reporter's Notebook] Difficulties ahead for Dayou

Namyang Dairy Product Chairman Hong Won-sik appears at a government audit in the National Assembly on Yeouido, Seoul, Oct. 8. Yonhap

Dayou needs more than W150 bil. in external funds for acquisition deal

By Kim Jae-heun

Dayou Winia Group (Dayou), a mid-sized auto parts maker, signed a conditional contract with Namyang Dairy to acquire a controlling stake in the firm, but only if the dairy company wins its ongoing lawsuit with Hahn & Company ― otherwise, the sales agreement will be nullified.

Furthermore, Namyang Dairy Chairman Hong Won-sik can change his mind at any time as Dayou and Namyang have not settled on any specific contract details such as the dates to ink a share purchase agreement or make payment.

One of the most convincing reasons that has been said about Hong’s sudden change of heart to “not sell” his company to Hahn & Company was the low price Namyang offered in the first place.

Hong offered to sell his family’s and his controlling stake of 53.07 percent for 320 billion won ($269.2 million). This brought about a controversy as the market estimates Namyang Dairy’s corporate value at 1 trillion won (841.3 million). The dairy firm’s interested parties disagreed on handing over the company for a price at one third of its value.

Now Namyang Dairy’s capitalization stands at 330.5 billion won and the net market value of Hong’s stock on sale is estimated at 175 billion won. Dayou and Namyang temporarily settled the stock sales price at the 320 billion won that it agreed to with Hahn & Company, but the question is if the auto parts maker can afford the price on its own.

Dayou has four listed affiliates that have relatively stable assets. Winia Dimchae, the flagship company of Dayou Winia Group, has 476.3 billion won in floating assets, 9.9 billion won of which are cashable. The other three ― Dayou A-Tech, Dayou Plus and Dayou AutoParts ― have 70.4 billion won, 50.1 billion won and 42 billion won in cash, respectively. Collecting all the deployable assets accounts for 172.4 billion won, which is short of the 150 billion won needed for the rest of the payment. But again this is only if Hong is willing to sell his stake for 320 billion won, which is highly unlikely.

Dayou has no choice but to secure funds for the acquisition through large-scale borrowing from the financial sector or a consortium it has yet to establish.

The market sees the agreement between Namyang Dairy and Dayou as a half-contract as it contains no concrete details including the sale price.

“Even if Namyang Dairy wins the lawsuit against Hahn & Company, the dairy firm can cancel the sell-off deal with Dayou like it did with the private equity fund (PEF). We have to see the deal proceeding to predict the outcome,” an industry source said.

Hong has promised repeatedly to give up his controlling stake in the company and stop participating in management. However, he did not show up at a shareholders’ meeting to conclude the stock purchase agreement with Hahn & Company in August. The PEF filed a lawsuit on the grounds of the resulting delay in carrying out the contract and Hong’s additional demands afterwards.

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