Hanwha to purchase Samsung affiliates for US$1.7 bn; to create petrochem giant in South Korea

One of the largest business conglomerates (chaebol) in South Korea that was founded in 1952, Hanwha Group’s acquisition of Samsung Group’s stakes in petrochemicals and defence for US$1.72 billion is expected to boost its leading role in the petrochemicals sector in the country.

Hanwha's chemical affiliates, Hanwha Chemical Corp. and Hanwha Energy Corp, will acquire a 57.6% stake in Samsung General Chemicals, which also has a 50% stake in Samsung Total Petrochemicals, a joint venture with French energy conglomerate Total. This deal would include acquiring assets of Samsung Petrochemical, which was absorbed by Samsung General Chemicals last June. Samsung C&T, the construction and trading unit, will keep its 18.5% stake in Samsung General Chemicals to collaborate with Hanwha in the chemical business.

Hanwha will also acquire a 32.4% stake in Samsung’s defence unit Samsung Techwin, which owns a 50% stake in Samsung Thales, a joint venture with France's Thales International. The acquisition includes a 10% stake in Korea Aerospace Industries (KAI), the nation's sole aircraft manufacturer and top defence contractor by sales.

For Samsung, the deal allows the country's biggest family-run conglomerate to let go of its non-core businesses and prepare a leadership transition from the ailing Samsung Group Chairman Lee Kun-hee to his children. Samsung says it will move forward in realigning its units to focus on technology, finance, infrastructure and content businesses under the future leadership of Lee Jay-yong and his two sisters.

"Through this M&A, Hanwha Group will be able to have economies of scale and elevate defence and petrochemical businesses, which have been the group's backbone for the past 60 years, to become the nation's industry leaders," the company said in a press release.

When combined with Samsung's defence units, Hanwha Group's defence sales is expected to reach 2.6 trillion won, a sharp rise from 1.18 trillion won in 2013. Sales of Hanwha Chemical, the group's cash cow, will also increase to 18 trillion won from 4.1 trillion won after taking over two Samsung chemical firms.

When the deal is completed next year, Hanwha will become South Korea's ninth largest business group, up one place from the current ranking of ten.

In a separate statement, Hanwha Chemical said it hopes to diversify its product line-up and expand its competitiveness in the petrochemical sector through the deal to secure a stable source of profit.

Samsung and Hanwha said that the deal will be finalised by the end of the first half of next year after conducting due diligence of buy and sell-side assets early next year.


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