Doublestar ends bid for Kumho

Doublestar’s tireless efforts to acquire Kumho Tire are officially no more.

The Chinese buyer agreed to terminate a deal worth 955 billion won ($846 million) on Tuesday after a feud with Kumho Tire’s creditors over the sale price dragged on for weeks.

With the sale canceled, Kumho Asiana Group, the former owner of Kumho Tire, spared no time submitting a fresh turnaround plan to the tire maker’s main creditor, Korea Development Bank.

Kumho Asiana Group lost control of Kumho Tire after it filed for a debt workout program in 2009. The group had suffered a severe liquidity crunch after purchasing Daewoo Engineering and Construction. In 2010, creditors bought 42.01 percent of Kumho Tire through a debt-equity swap and have since been searching for a buyer.

In March this year, Doublestar signed a preliminary agreement to buy a controlling stake in Kumho Tire, but the bidder continued to request a price lower than initially agreed, citing Kumho Tire’s faltering earnings and stock value.

Last week, Korea Development Bank demanded that Doublestar cancel the deal after the two parties failed to agree on a price. On Tuesday, the bank said the Chinese tire maker had sent a document recognizing the bank’s request to nullify a stock purchase agreement.

“We received the agreement this morning,” a spokesperson at the bank said Tuesday. “The deal is over.”

With that, Korea Development Bank has requested Park Sam-koo, chairman of Kumho Asiana Group, to submit “viable” turnaround measures for the tire maker. A Kumho Asiana Group spokesperson said the company could not reveal any details of the plan at the moment.

Multiple media reports have speculated that the measures may include selling off assets in China where its business is losing ground. Despite shrinking profits, Kumho Tire still maintains three factories in China.

After first entering China in 1994, the tire maker dominated the local market from 2007 to 2011, supplying to the Chinese ventures of General Motors, Hyundai Motor, Peugeot and Volkswagen as well as several homegrown automakers.

In 2010, China made up 30 percent of Kumho Tire’s global sales, but the proportion has since been reduced to 10 percent as of the first half this year.

Many believe the flagging performance started with a large recall in 2011 after Kumho’s products in China were found to contain excessive amounts of recycled rubber, prompting the company to suspend production at its plant in Tianjin.

Besides scaling down its Chinese business, another likely option, according to reports, is raising money by issuing new stocks. Korea Development Bank has made clear that if Kumho Tire’s management or Chairman Park fail to issue a feasible turnaround proposal, the bank will dismiss all the company’s executives.

The tire maker faces an imminent liquidity crisis, posting a 50.7 billion won operating loss during this year’s first half after making 55.8 billion won operating profit in the first six months of last year.

Kumho Tire also needs to pay off corporate bonds worth over 1 trillion won by the end of this year.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]