AIG Pulls Out of Hyundai Securities Deal

January 18, 2002

American International Group has terminated its efforts to reach an agreement with the South Korean Government and the management of Hyundai Investment Trust & Securities to acquire the securities broker and two affiliates, stating that, “despite the best efforts of all the parties concerned, it appears that an agreement will not be attained.”

AIG’s decision to pull out of the talks apparently ends its participation in the marathon negotiations which began with the announcement last April the insurer and its leading investment partner WL Ross and Co. LLC would acquire Hyundai and its affiliates for an investment of around $850 million.

The talks first foundered last August over objections from the Korean government and shareholders that AIG’s offer of around $$5040 a share undervalued the company; they wanted to see the price raised to around $7.00 a share. Another ongoing problem, which seems to have been the deal breaker, was AIG’s insistence on government participation and investment in Hyundai Securities.

While the government eventually agreed to inject around $690 million in the Hyundai companies, AIG reportedly sought further guarantees that it would assume any liabilities not disclosed before the takeover became effective. It twice pulled out of its “due diligence” investigation of Hyundai, when it appeared that no agreement could be reached.

Many analysts had concluded that AIG was simply seeking to drive a hard bargain. The Korean government’s Financial Supervisory Service (FSC) issued a statement Wednesday asserting that the company remained committed to striking a deal. It appears, however, that, despite several extensions of the deadline to complete the transaction, AIG’s participation is finished.

The company issued a brief statement, saying ” Although the Memorandum of Understanding expired on December 31, 2001, at the request of the FSC we extended discussions through January 15, 2002 in an effort to reach agreement with the parties. However, despite the best efforts of all the parties concerned, it appears that an agreement will not be attained. Thus, AIG will terminate negotiations with the FSC and HDS with respect to its proposed investment in the three Hyundai affiliates.”

AIG’s partner WL Ross, however, continues to be interested. Its Chairman Wilbur L. Ross indicated that his firm intends to negotiate with other strategic investors to replace AIG, and will continue negotiations with the FSC. “While we regret AIG’s decision to depart from the consortium at this late stage of the negotiations,” Ross stated, “we remain convinced of the bright future for financial services in Korea and of the promise of the outstanding opportunity for international investors to share in the renewed, powerful growth of Hyundai Investment Trust & Securities Co., Ltd., Hyundai Investment Trust Management Co., Ltd. and Hyundai Securities Co., Ltd. Therefore, we have retained Lehman Brothers Holdings to negotiate with other strategic parties.”

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