Hyosung Chemical cancels M&A deal as struggling Samsung pulls orders

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Hyosung Chemical cancels M&A deal as struggling Samsung pulls orders

Published: 25 Nov. 2024, 17:01

Audio report: written by reporters, read by AI

Hyosung Chemical's production facility in Ulsan [HYOSUNG CHEMICAL]

Hyosung Chemical failed to reach an agreement with buyers regarding the sale of its specialty gas division after lagging sales, following slump in the chip industry, damaged its valuation. Samsung Electronics, a major customer of the division, had placed fewer orders due to its poor performance.

All eyes are now on other planned mergers and acquisitions (M&A) in the specialty gas sector, particularly on Samsung rival chipmaker SK’s sale of its gas and chemical affiliate, SK Specialty.

Hyosung Chemical said it had withdrawn its selection of a consortium led by Stic Investment and IMM Private Equity as its preferred negotiator for the purchase of its specialty gas division in a filing on Nov. 20.

“We discussed terms for a deal on the sale of the specialty gas division with the preferred negotiator, but failed to reach a mutual agreement, and so have withdrawn our selection of preferred negotiator,” the chemical products manufacturer said.

Hyosung back to drawing board after deal falls through

Hyosung Chemical’s specialty gas division produces nitrogen trifluoride (NF3), a gas used to clean residue from the production of chips and displays. The company owns facilities that can, in total, produce 8,000 tons of the gas, including its new plant in Oksan, North Chungcheong, that started production in January. It ranks third, globally, in production volume, with SK Specialty currently in first place and China’s Peric in second.

Gas manufacturers that have secured long-term contracts have stable profit structures, making them an attractive offering in the M&A market. The global NF3 market has a bright future — Market Insights Reports projected that it would grow more than twice over, from $1.42 billion to $3.49 billion, between 2022 and 2029, in line with the general trajectory of the chip industry.

Hyosung Chemical's Neochem Performance Unit (PU) plant [HYOSUNG CHEMICAL]

Hyosung Chemical’s specialty gas division, however, relies on Samsung Electronics for a large portion of its sales and is highly affected when the tech firm underperforms. The gas business’s sale price, which at one point reached 1.3 trillion won ($929.4 million), began falling after revealing a murky sales forecast for 2025. Negotiations continued to fall through as the companies failed to agree on prices. Air Products Korea abruptly halted M&A talks in October after Samsung Electronics halted construction on its Pyeongtaek P5 semiconductor plant, for which the firm had been chosen as a supplier.

Hyosung Chemical said it was “continuing discussions with other investors in the pursuit to follow through for an acquisition.” But for the company, which is in immediate danger of falling into capital erosion, there isn’t much time left. As the petrochemical industry falters, Hyosung Chemical has posted 11 consecutive months of operating losses and had built up 111.7 billion won in deficit in just this year as of September.

The manufacturer had listed assets of 32.5 billion won and short-term liabilities of 1.37 trillion won as of late September.

“Tens of billions of won were accrued as interest during the five months that negotiations for the sale took place,” an industry insider said.

Hyosung Group has even started considering selling to its affiliates. Its chemical fiber affiliate, Hyosung TNC, said it was “internally reviewing a letter of intent [it had] received for the acquisition of Hyosung Chemical’s specialty gas business” in a filing on Nov. 22. It could benefit Hyosung Group if an affiliate took over Hyosung Chemical's specialty gas division and fix its liquidity problems while protecting its profitable investments instead of selling it for a giveaway price.

Hyosung TNC’s shares plummeted 20.63 percent to 213,500 won from the previous trading session on Nov. 22 after news broke that the spandex manufacturer could take on the ailing business's financial burdens. The company said “nothing” had been decided on yet.

SK Specialty's offices [SK SPECIALTY]

All eyes on SK Specialty

The M&A market is now paying attention to SK Specialty. The wholly owned subsidiary of SK Inc. recorded 681.7 billion won in sales and 147.1 billion won in operating profit last year. SK Group has been reshuffling its major affiliates in an overhaul of its corporate structure and made the decision to secure cash by selling the manufacturer, which is the global leader in gases used in the production of equipment including semiconductors and solar cells. Korean private equity firm Hahn & Company was selected as the preferred bidder in September. The deal is expected to fetch at least 1 trillion won.

Unlike Hyosung Chemical, SK Specialty’s profitability has been stable this year thanks to continued business from SK affiliates, such as SK hynix, that are among its major clients. Industry insiders have a positive outlook for SK Specialty’s M&A, estimating the company’s worth to be in the 4 trillion won range. The exact price and shares will be determined after negotiations, as SK Inc. plans to retain some its stake in the gas unit.

BY PARK HAE-LEE [[email protected]]