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30 Nov 2017

Advised PHC Group in Combining Global Torque Converter Businesses with Valeo Group

Our client, PHC Group (“PHC”), which is a global manufacturer/supplier of auto-parts headquartered in Korea, reached an understanding with Valeo Group (“Valeo”), also a global automotive supplier headquartered in France, to combine their global torque converter businesses. Accordingly, the parties had to create joint ventures involving two companies of PHC (which were the 3rd largest global manufacturer/supplier of torque converters) and four companies of Valeo (which were the 5th largest global manufacturer/supplier of torque converters).

 

Since the companies involved in the contemplated joint venture between PHC and Valeo were located in five countries with different legal systems, including Korea, China, Japan, U.S. and Mexico, establishing separate joint ventures in each country would have jeopardized the project given the complexity of commercial and legal difficulties. Accordingly, the parties decided on a global joint venture structure whereby KAPEC would become a joint venture and PHC’s four foreign subsidiaries would become wholly-owned subsidiaries of KAPEC. This way, the parties’ agreed commercial and governance principles could be applied to KAPEC as well as its new subsidiaries across the board. In addition, to reflect valuation results, Valeo injected, among other things, its intellectual property rights as in-kind contribution into KAPEC, which would be essential for the four foreign subsidiaries to continue their operations based on licenses from their new parent company, KAPEC.

 

Yulchon’s M&A team was instrumental in structuring and implementing the project as PHC’s legal counsel. Yulchon’s comprehensive advice included structuring of the transaction, carrying out due diligence investigations of the foreign companies, drafting and negotiations of the transaction documents and assisting with regulatory filings and approvals, which included thorny issues in various countries. For example, in-kind capital contribution of a foreign company’s shares requires a court approval in Korea, which is typically the key requirement in Korea that takes at least 2-3 months, but given the need to obtain the approval for simultaneous in-kind contributions of the shares of four foreign companies, it was unclear whether such court approval could be obtained let alone how long it would take. Nevertheless, in order to meet the timing requirements of the parties, Yulchon was able to obtain such court approval in only 3 days based on its careful preparations and convincing reasoning.

 

Having obtained the necessary regulatory approvals, PHC and Valeo successfully consummated the transaction as of 30 November 2017, resulting in the new joint venture company, Valeo-Kapec Co., Ltd. (“Valeo-Kapec”), becoming the #1 global leader in terms of market share and technologies in the torque converter market with more than 3,000 employees and expected turnover of 1 billion euros. Aside from the largest market share, Valeo-Kapec will benefit from the two partners’ geographic and business strengths that are complementary to each other. Moreover, the combined R&D capacities are expected to enable Valeo-Kapec to successfully respond to the ever more increasing competitions in the auto-parts markets including high-technology product lines.

 

Hyung Ki Lee, Young Su Shin, Chae Yeon An and Hyung Joon Park advised on the transaction.  

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