The Hyundai E&C sale fiasco

A Seoul court’s ruling this week to reject a Hyundai Group injunction request to stop creditors from canceling its selection as the winning bidder for Hyundai Engineering & Construction could in fact signal the end of the first phase of an epic family feud.

Hyundai Group now plans to appeal the ruling, suggesting there will be a second round.

Ever since the creditors initially chose Hyundai Group over Hyundai Motor Group to buy a majority stake in the former Hyundai empire’s flagship construction company, the drama has descended into mudslinging among all the related parties.

The decision has been subject to conspiracy theories, disclosures and lawsuits. Financial authorities, in the meantime, remained on the sidelines.

In a separate commentary accompanying its ruling, the court censured all parties. It pointed out that the creditors were unreasonable in demanding unrelated documents from the bidders. The court also said Hyundai Group failed to comply with the requirement to present credible material according to the memorandum of understanding. The court added that Hyundai Motor Group, after losing the bid in the first round, refused to accept the ruling, raised various suspicions and caused a racket over the creditors’ choice.

But the court didn’t mention the financial authorities’ irresponsibility. They failed to set strict guidelines on mergers and acquisitions by leaving the process only open to market players. If it had laid down firm rules on family ownership and acquisition qualifications, the current controversy could have been avoided. Creditors are first to be blamed for causing this mess by focusing on profit margins instead of the various qualification criteria.

The saga is likely to drag on as Hyundai Group plans to fight back. Creditors should consider starting the bid from scratch. Conflict over ownership in Hyundai Engineering has lingered for four years, and a few extra months won’t likely make a big difference. Hyundai Engineering is muddling along, but bank creditors want to get rid of their stake as soon as possible.

But they must administer a fair and transparent sale so that the concerned parties can accept the result without suspicion of favoritism. Otherwise the family feud may turn into a political problem.

Both Hyundai parties should also clarify their real motive behind their bid for the flagship engineering company.