Kumho sticks to guns on brand rights

The executive board of Kumho Industrial on Tuesday proposed a revised offer regarding the Kumho Tire brand, partially accepting creditors’ version but remaining firm on who pays fees for the brand.

“The executive board of Kumho Industrial has decided to accept the revised offer from Korea Development Bank of paying 0.5 percent of sales for 12.5 years for brand rights to Kumho Tire,” Kumho Asiana said through a statement.  

However, Kumho Asiana said that while it agreed to the 0.5 percent rate at 12.5 years, it would not permit 0.2 percent to come from Doublestar and 0.3 percent to come from the creditors, but would require Doublestar, the actual user of the brand, to pay the whole 0.5 percent.

“We believe that it is the correct procedure to receive brand usage fees directly from the user,” a spokesperson for Kumho Asiana said. 

The decision came at a meeting of Kumho Industrial’s executive board Tuesday morning. The use of the Kumho name had been the sticking point in Kumho Tire creditors’ efforts to sell a controlling stake in the tire company to Chinese company Doublestar.

Earlier this month, the creditors of Kumho Tire offered that they would pay 0.3 percent of Kumho Tire’s revenues for the Kumho name, to make up for the discrepency between Kumho Industrial’s initial proposal of 0.5 percent and Doublestar’s 0.2 percent.

An agreement, as proposed, would allow the creditors to maintain its existing contract with Doublestar by paying out the difference to Kumho Industrial. The 12.5-year period was also a compromise of Kumho’s original demand of 20 years of obligatory use and Doublestar’s first five years of use followed by a possible extension of 15 years.

Kumho Asiana Chairman Park Sam-koo had sought to buy back Kumho Tire from his creditors, but his efforts had been thwarted when the creditors, led by Korea Development Bank, refused to allow him to form a consortium to bid for the 42 percent stake.

Since the stock purchase agreement between Doublestar and Kumho Tire’s creditors, Park had been thought to be indirectly delaying the final sale by holding back the rights to the Kumho name, which is owned by Kumho Industrial. 

However, in the statement, Kumho Asiana Group said that it would “respect and humbly accept” the decision of the Kumho Industrial board.

Although Kumho Industrial seems on the surface to have reached a compromise with the creditors, Kumho‘s proposed revision to the payment plan may prove problematic in the Doublestar deal, according to industry watchers. Doublestar has already reached an agreement with the creditors to pay just 0.2 percent in brand usage fees. If the agreement is revised to have Doublestar pay 0.5 percent, Doublestar is free to nullify the deal with no penalty. 

If Doublestar agrees to accept payment of the additional 0.3 percent from the creditors and pass along the payment to Kumho, it can be seen as an adjustment to the original stock purchase price of 955 billion won -- which is also a violation of the original agreement. Since Doublestar was chosen to acquire Kumho Tire based on a bidding process, any reduction in the purchase price would require the creditors to renew Chairman Park’s right of first refusal based on the new price.

The latest development comes as employees within Kumho Tire had publicly opposed the acquisition by the Chinese company. On Thursday, executives at Kumho Tire released a joint statement saying that they would all resign if the company was sold to Doublestar. 

There are concerns that the deal might affect the job stability of employees at Kumho Tire as well as lead to Doublestar acquiring Kumho Tire’s technology and then shedding the company. Although Doublestar has said that it will “hold all job positions and recruit local talent” after the acquisition, union members strongly protested the deal.

By Won Ho-jung (hjwon@heraldcorp.com)