UTK Acquisition Battle Heats Up... Final Negotiations Amid 'Unfair Sale Process' Controversy

"Macquarie PE Unfair Practices, Lead Underwriter BofA's Inappropriate Actions" Industry Claims
Seller: "Not a Public M&A but Private Company M&A, Found a Good Bidding Opportunity"

Macquarie Asset Management (Macquarie PE) is pushing for the sale of tank terminal operator United Terminal Korea (UTK), amid fairness controversies arising during the selection process of the preferred bidder.

According to the investment banking (IB) industry on the 15th, Bank of America (BofA) Merrill Lynch, the lead manager for UTK’s sale, selected IMM Private Equity (PE) as the preferred bidder. Both parties are currently engaged in final negotiations over the valuation.

"Unfair Practices Occurred During UTK Bidding Process," Industry Raises Concerns

As the final negotiations proceed, industry claims have surfaced alleging unfair practices by Macquarie and BofA during the bidding process.

An IB industry official stated, "Macquarie announced the sale of UTK through an open bidding process, and companies that passed the preliminary bidding conducted due diligence at considerable cost and submitted bids according to the schedule set by Macquarie. However, immediately after the bid deadline, Macquarie conducted separate negotiations with IMM PE through the lead manager BofA," he claimed.

UTK is a liquid cargo storage tank operator located at Ulsan Port. Tae Young Group and the United Arab Emirates (UAE) state-owned oil company Emirates National Oil Company (ENOC) each held 50% stakes and jointly managed the company until 2017, when Macquarie PE acquired the entire stake for around 100 billion KRW.

Macquarie conducted the preliminary bidding last October and required companies selected as final bidding candidates to submit their bids by noon on December 8. IMM PE submitted its bid after this deadline.

The official said, "They violated the previously announced schedule for announcing the preferred bidder selection results (December 15) by nearly a month and made the announcement through the media, which is a breach of basic business etiquette. Despite having already engaged in detailed contract and payment negotiations with IMM immediately after the bid deadline, they falsely informed other bidders that the bids were still being fairly reviewed," he said.

There are also allegations that Macquarie included false information in the sale proposal to realize a sale price more than twice the actual investment amount, presenting it as fact to potential buyers.

It is claimed that Macquarie falsely stated there was a valid Memorandum of Understanding (MOU) to acquire usage rights for the Hanjin Ulsan New Port Wharf and CJ Logistics Wharf adjacent to the third terminal built and operated by UTK.

Macquarie specified that acquiring these two wharfs and constructing a terminal would secure an additional annual operating profit of 18 billion KRW, but UTK did not have any valid agreements with those companies regarding the acquisition of the two wharfs.

An IB industry official said, "They deceived by implying that UTK could acquire wharfs owned by Hanjin Group affiliates and CJ Logistics adjacent to one of UTK’s terminals to build additional tank terminals. In reality, Hanjin and CJ, who hold rights to those wharfs, have no intention of transferring usage rights to UTK. This, under normal circumstances, would constitute fraud and could lead to civil and criminal liability," he said.

Seller Side: "Sale Process Conducted Thoroughly Fairly and Transparently"

The seller side strongly denied these allegations.

The seller (Macquarie PE) explained that selecting a lead manager (BofA Merrill Lynch) and negotiating individually with each potential buyer is a common practice in the mergers and acquisitions (M&A) market. They also argued that since this is a private company M&A, not a public M&A led by institutions like the Korea Development Bank, submitting bids after the deadline is not problematic. From the private seller’s perspective, there is no need to restrict opportunities to receive better bids.

A seller representative said, "The sale process has been conducted thoroughly fairly and transparently, and unfair practices could not have occurred. From the seller’s standpoint, we comprehensively evaluate and judge not only the price but also whether the bidding is binding and fully qualified, and whether there are any other constraints related to deal closure," he said.

He also explained, "An MOU does not have 100% binding power guaranteeing the deal, but simply shows that such discussions are underway," adding, "Various domestic law firms are involved in the sale process, and multiple bidders have reviewed and made final judgments, so there is no deception or trickery involved."

The preferred bidder IMM PE also denied any unfairness in the M&A procedure.

An IMM PE official said, "Individual buyers do not know with whom the lead manager is negotiating or whether the negotiation target is single or multiple parties; this is a common method used in M&A to maximize sale price. IMM PE requested an extension of the bid deadline from BofA in advance due to the schedule of due diligence and internal investment review, and the lead manager was already aware that IMM PE did not give up on the purchase even if the bid was submitted after the deadline," he explained.

The official added, "We do not know whether other bidders submitted higher or lower prices. If another bidder offered a higher price but was not selected as the final buyer, it would be because they scored lower on non-price factors," he mentioned.

They argued that the seller has no reason to conduct an M&A that would cause losses, especially to investors.

It is known that the final bidding held on December 8 last year included domestic and foreign financial investors (FIs) and companies, including IMM PE. Global private equity firm Cloverleaf Kravis Roberts (KKR), which was considered a strong candidate, withdrew just before the final bidding, leaving IMM PE as the sole bidder in negotiations.

The sale price is rumored to be between 300 billion and 400 billion KRW. This is interpreted as an intention to increase the sale price in line with the company’s improved performance. Macquarie PE invested about 100 billion KRW to acquire UTK in 2017. Since then, it has increased corporate value through tank terminal expansion and bolt-on (acquisition of similar companies) strategies. As a result, sales and operating profit, which were 15.6 billion KRW and 6.4 billion KRW respectively at acquisition, surged to 43.3 billion KRW and 13.9 billion KRW last year.