Glenwood to sue Baring PEA over buyout deal cancellation

South Korea’s Glenwood Private Equity is set to take legal action against Hong Kong-based Baring Private Equity Partner over the cancellation of a contract to buy a majority stake in the world’s largest polyimide film manufacturer PI Advanced Materials Co. for nearly $1 billion.

Baring PEA said it broke the agreement in line with due process, raising expectations of a fierce legal battle between the two PE firms over who is responsible for aborting the deal.

Glenwood plans to file a lawsuit against Baring PEA for a termination fee after the Hong Kong firm reneged on a stock purchase agreement (SPA) to buy a 54.07% stake in South Korea’s PI Advanced Materials for 1.3 trillion won ($975 million), according to investment banking industry sources in Seoul on Friday.

The Seoul-based firm aims to initiate the litigation early next year, after the original Dec. 30 deadline to conclude the transaction.

DOWN PAYMENT, DAMAGE

Glenwood is expected to seek a termination fee of up to some 130 billion won, about 10% of the sale price.

The PE firm did not receive a down payment from Baring PEA when they signed the SPA in June. In transactions between PE firms, a buyer usually makes a full payment at once when a deal is closed to avoid the hassle of asking limited partners for capital calls twice for a down payment and balance. Glenwood needs to file a suit to receive a down payment for the PI Advanced Materials deal from Baring PEA.

Glenwood is also considering suing Baring PEA for damages, saying PI Advanced Materials lost competitiveness.

The South Korean PE firm is estimating the damages that PI Advanced Materials has suffered since June when Baring PEA agreed to buy the company. The Hong Kong PE firm reportedly opposed major decisions on the management sought by Glenwood, blocking important strategic moves for the company’s growth, industry sources said.

That affected PI Advanced Materials’ earnings, Glenwood said. The company’s sales fell 6.4% to 70.2 billion won in the third quarter from the previous three months, although its operating profit rose 8.5% to 14 billion won.

NO ISSUES WITH CANCELLATION: BARING PEA

Baring PEA said the cancellation did not have any issues.

“We lawfully exercised the right to cancel under the contract as the prior conditions were not met,” it said on Wednesday.

The lawsuit, which Glenwood plans to file, will be carried out in accordance with the penalty clauses related to the contract cancellation, an investment banking industry source said.

“Baring PEA may have dropped the deal as it expected to win the case or minimize the damage when it loses in a potential lawsuit,” the source said.

DAMAGE TO GLENWOOD

Glenwood is likely to suffer considerable damage even if it wins the litigation as the cancellation tarnished its reputation and PI Advanced Materials’ share prices lost ground after the deal with Baring PEA.

The company’s market capitalization more than halved to about 900 billion won from some 2 trillion won earlier this year.

It will be also difficult for Glenwood to sell the company at a price that the PE firm wants, given the planned lawsuit.

A buyer’s cancellation of a takeover deal often results in legal battles.

HDC Hyundai Development Co., which agreed to acquire Asiana Airlines Inc. in 2019, demanded further due diligence when COVID-19 broke out in early 2020. South Korea’s No. 2 carrier refused and the deal was broken. HDC filed a lawsuit for a refund of the 250 billion won down payment, which it paid when it signed the takeover deal, but recently lost the case.

Baring PEA also had similar litigation. CVC Capital Partners 2016 agreed to acquire South Korean logistics company Logen Co. from the Hong Kong PEA, but canceled the deal due to errors in the company’s earnings.

Baring PEA filed for international arbitration to seek a down payment of 5 billion won and won the case.

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