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. Last Updated: 07/27/2016

South Korean Giants Forge Merger Deals




SEOUL, South Korea -- Two top South Korean computer-chip makers agreed to merge Thursday in an industry shake-up that forced the nation's bloated conglomerates to reorganize some of their key, overlapping subsidiaries.


The marriage between Hyundai Electronics Industry Co. and LG Semicon will create the world's second largest computer memory-chip maker with a combined 17 percent market share. Samsung, also from South Korea, leads the market with a 19 percent share.


The Hyundai-LG merger was the highlight of a package agreement unveiled Thursday, in which the nation's top five conglomerates merged 17 of their key subsidiaries.


"The deals will relieve some of the burden of the excessive, overlapping investments,'' said Sohn Byung-doo, vice chairman of the Federation of Korean Industries, a lobby of big businesses.


Also under the agreement:


...Samsung, Daewoo and Hyundai will merge their aircraft components subsidiaries.


...The rolling stock arms of Hyundai and Daewoo will merge. A smaller rolling stock builder, Hanjin, will join the merger later.


...Samsung and Hyundai will merge their petrochemical companies.


...Hyundai will take over the oil refinery and gas-station chain owned by Hanwha.


...Samsung will sell its ship engine plant to Hanjoong, a state-owned heavy industries company.


...Hyundai and Hanjoong will merge their power plant-building operations.


Officials still have to work out details of what Sohn repeatedly called "voluntary deals.''


But analysts noted the government's heavy-handed intervention and said the marriages could be short-lived.


"The business groups were forced to cooperate [with the government] because of the business slump now,'' said Yoo Seong-min, a researcher at the state-funded Korea Development Institute. "The merger pacts could fall apart once the economy turns around.''


Big businesses have survived repeated government attempts to reduce their size. They had often announced restructuring plans but seldom followed through.


Militant labor unions also could derail the mergers that could entail layoffs, said Lim Ji-won, an economist at investment bank JP Morgan in Hong Kong.


A new South Korean labor law gives companies the right to lay off workers. But accustomed to lifetime employment, Korean workers have been fighting back with a spate of strikes this year.


Conspicuously absent in Thursday's industry shake-up was car companies, whose sprawling facilities have come to symbolize South Korea's industrial overexpansion. The auto industry restructuring was stalling pending the fate of bankrupt Kia Motor Co., the country's No. 2 automaker, now up for an international auction.


South Korean conglomerates have been accused of overexpanding and over diversifying during the country's boom years, sowing the seeds for the country's current financial crisis.


The International Monetary Fund demanded a reorganization of Korean conglomerates as a condition for a record $58 billion bailout in December.