Baring PEA breaks $1 bn PI Advanced Materials buyout deal

Hong Kong-based Baring Private Equity Asia has broken a deal to buy a majority stake in the world’s largest polyimide film manufacturer PI Advanced Materials Co. for nearly $1 billion as rising interest rates ramped up the acquisition cost despite the plunge in the company’s share price. 

The cancellation added to concerns over the sluggish global mergers and acquisitions market amid central banks’ monetary policy tightening worldwide to stem inflationary pressure.

Baring PEA, which was acquired by Swedish investment organization EQT AB in October, on Thursday notified its largest shareholder Seoul-based Glenwood Private Equity of its decision to break the PI Advanced deal, according to industry sources.

The move is expected to spark considerable conflict between the two private equity firms over the responsibility for the contract termination.

MARKET CAPITALIZATION NOW LOWER THAN TAKEOVER PRICE

In June, Baring PEA inked a stock purchase agreement for a 54.07% stake in the company from Glenwood for 1.3 trillion won ($967 million), much higher than bids from competitors such as South Korean petrochemical producer Lotte Chemical Corp. and French specialty materials maker Arkema S.A.

The private equity firm agreed to buy the stake for about 80,000 a share, but its stock closed at 31,800 won on Thursday. Its market capitalization has shrunk to 933.8 billion won, far lower than the agreed-upon acquisition price.

Glenwood and Baring PEA had aimed to conclude the deal by Dec. 30 of this year. They had originally planned to complete it by end-September, but antitrust authorities in other countries such as China took longer to review the acquisition. China was known to be announcing the results of its review soon.

Baring PEA may have wanted to renege on the deal as the tumble in PI Advanced's share price raised concerns among fund investors, investment banking industry sources in Seoul said.

“Baring PEA may have suddenly scrapped the contract as China was expected to approve the takeover, which would force it to implement the deal,” said one of the sources.

Write to Chae-Yeon Kim at why29@hankyung.com
Jongwoo Cheon edited this article.