SK Siltron Acquisition Narrows to Two-Way Race Between STIC and Hahn & Company

IMM PE, MBK Withdraw from Bidding
Hahn & Company Holds Advantage in Both Financial Resources and Network
Tug-of-War Expected Between SK Group and Chey Taewon Over Personal Stake

The acquisition battle for SK Siltron, considered the largest M&A deal in the first half of this year, has narrowed to a two-way race between Hahn & Company and STIC Investments. Given their financial resources and relationship with the SK Group, Hahn & Company is seen as having the upper hand.

According to the investment banking (IB) industry on May 2, only Hahn & Company and STIC Investments have seriously entered the bidding for SK Siltron, a subsidiary of SK Group. Both MBK Partners and IMM Private Equity, which were initially mentioned as potential buyers, have reportedly withdrawn. Although MBK Partners has sufficient funds, it is said to have dropped out early due to the aftermath of the Homeplus situation. IMM PE was also rumored to be forming a consortium with STIC Investments to participate, but has effectively decided not to take part.

If the competition remains between two parties, there are expectations that Hahn & Company will be superior in several respects. First, in terms of financial resources, SK Siltron's enterprise value (EV) is estimated at around 5 trillion won. After subtracting SK Siltron's net debt of 3 trillion won and applying the 70.6% stake being offered for sale, the acquisition price is estimated to be about 1.5 trillion won. Hahn & Company has about 2.65 trillion won in dry powder (uncommitted capital) remaining from its fourth blind fund, which totals 4.7 trillion won.

STIC Investments' dry powder from its blind fund currently stands at about 1 trillion won. Furthermore, STIC Investments is also pursuing the acquisition of Renewus, the environmental business subsidiary of SK Ecoplant, and Renewon, a landfill operator, at the same time as SK Siltron, making it difficult to allocate all of its dry powder to the SK Siltron deal. Acquisition financing is also not easy. Because SK Siltron has net debt of about 3 trillion won, there is limited collateral value for raising loans. An IB industry source explained, "The National Pension Service has recently taken a stance of not committing large amounts of capital to individual investments, so it is also difficult to raise funds by creating project funds with pension funds or mutual aid associations."

As a result, with Hahn & Company in a favorable position, there are expectations that real negotiations will take place over the 29.4% stake in SK Siltron held by SK Group Chairman Chey Tae-won. SK Group appears to want to retain Chairman Chey's personal stake for now. This is because there was already controversy when the stake was initially secured, and the group wants to avoid further public criticism. Since Chairman Chey is currently involved in a divorce lawsuit, it also seems to reflect the need for SK Siltron shares as an important means of raising funds. In the future, SK Group will need a counterpart who can purchase the stake at a reasonable price without causing issues. Previously, the Fair Trade Commission issued a corrective order when SK Group acquired SK Siltron from LG, noting that Chairman Chey had participated in the acquisition. The commission's view was that SK Group had forfeited the acquisition opportunity and unfairly provided Chairman Chey with the chance to acquire the shares during the SK Siltron acquisition process.

On the other hand, from Hahn & Company's perspective, acquiring all of the shares would be the cleanest option. This would allow for free and smooth decision-making in the event of a future sale or IPO. Some believe that IMM's withdrawal was ultimately due to this point as well. Even if IMM participated, it would only serve as a 'stooge' for price negotiations between SK and Hahn & Company.

An industry insider from a private equity firm said, "SK Group will ultimately prefer Hahn & Company, considering their past relationship and the potential for a smooth transaction, but they may enter negotiations as if there are other buyers like IMM in order to push the price down. IMM seems to have recognized this situation and decided to withdraw early."

Some have raised concerns that the U.S. citizenship of Hahn & Company CEO Han Sangwon could become an issue. This is because SK Siltron's semiconductor wafer manufacturing technology is considered a national core technology, and it may not be easy to sell it to a foreigner.

However, industry insiders view this as an unfounded concern. Hahn & Company is said to have completed its own legal review and determined that nationality is not an issue. An IB industry source explained, "It is difficult to apply the concept of nationality to a private equity fund (PEF). It is not clear whether the nationality in question refers to the limited partners (LPs), the general partner (GP) representative, or the location of the GP, making it difficult to clearly define who is a foreigner."