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M&As

LG hires Kim & Chang as advisor for mobile division sale

Jan 22, 2021 (Gmt+09:00)

LG Electronics Inc. has mandated South Korea’s largest law firm Kim & Chang as the legal advisor for its smartphone division sale, according to M&A industry sources on Jan. 21.

Earlier this week, the country's fourth-largest conglomerate alluded to a potential sale or downsizing of its mobile communications division in an email issued by the company’s chief executive Kwong Bong-seok.

The company's decision comes as the mobile communications division has reported losses for 23 consecutive quarters, reaching a cumulative operating loss of 5 trillion won ($4.5 billion) as of the end of 2020.

Market watchers predict LG Electronics will split up the sale instead of selling the division as a whole. The company is expected to maintain the research and development operations for prior art.

The sale advisors are reportedly reviewing various options, including the divestiture of the smartphone business, a stake sale, as well as selling business rights and the intellectual property portfolio.

“It's extremely rare to make an official announcement before a deal has been formalized. It appears that even if the sale doesn't go through, the company has made up its mind to scrap the mobile business," an industry official said.

However, there are strong views that it won't be easy to find a buyer. LG Electronics' mobile division was once considered a leading global player thanks to its competitive technology. But over the past few years, it has crumbled to a loss-making business.

As a result, there is a wide gap in the mobile division's valuation, ranging from 500 billion won ($453 million) to several trillion won. The price tag will also vary drastically if the sale focuses on specific asset groups, such as production facilities or intellectual property rights.

"Google acquired Motorola Mobility for $12.5 billion in 2012, but three years later, it was sold to China's Lenovo for around $2.9 billion," said an investment banking source, explaining that the deal valuation likely depended on whether mobile chip-related patent assets were included.

So far, it appears that overseas buyers have expressed the most interest in acquiring LG Electronics' mobile business; mostly industry latecomers seeking to expand their presence in global markets.

Local media outlets have reported that Vietnam’s largest conglomerate Vingroup may be interested in buying the North American operations of LG’s smartphone business, alongside unidentified Chinese companies eyeing global expansion.

According to securities industry sources, IT giants such as Google and Facebook are also considered potential buyers, given their interest in LG’s smartphone operation to enhance their Internet of things business.

Meanwhile, some say that LG Electronics' decision to prioritize appointing a legal advisor shows that it is likely preparing itself for any eventuality, including restructuring.

However, amid the spreading rumors of the mobile division's future, LG Electronics CEO Kwon clearly stated that "regardless of the direction we decide on, there is no need to worry as, in principle, employment will be maintained."

Write to Ri-Ahn Kim at knra@hankyung.com

Danbee Lee edited this article.

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