To Save Troubled Companies Through Restructuring M&A, Operate Only on the Diseased Parts

The difference between Hanwha’s failed 2008 bid for Daewoo Shipbuilding and its successful 2022 acquisition illustrates a basic rule of restructuring M&A: a troubled company needs real money inside the business, not simply a payment to its existing owners.

In 2008, Hanwha agreed to buy the stakes held by the Korea Development Bank and Korea Asset Management Corporation for 6.3 trillion won. It signed a memorandum of understanding and paid a 315 billion won deposit, but financing problems during the global financial crisis prevented the final contract. The deal collapsed, followed by years of resale attempts, litigation over the deposit and controversy over the company’s rapid deterioration and alleged accounting fraud. Several KDB officials, including the author, were investigated by prosecutors.

Fourteen years after the sale process began, Hanwha signed a new purchase agreement in December 2022. This time, it left the KDB’s existing shares in place and became the largest shareholder by investing 2 trillion won in newly issued shares, securing a 49.3% stake. The two deals occurred under different market and financial conditions, but the structural distinction remains clear. A purchase of existing shares sends money to current shareholders. A rights offering puts new funds into the company, strengthening liquidity and its finances.

Restructuring deals often stall over who must accept risk first. New investors seek major reductions in existing shareholders’ stakes, debt write-offs and interest relief from creditors, as well as firm commitments for additional lending. Banks, meanwhile, want the investor’s new-share payment deposited before they restructure debt or extend further credit. Delay can cost customers, orders and key employees. The article says the answer is to make loss-sharing, new investment and credit facilities closing conditions that take effect simultaneously.

The Pan Ocean case shows the potential of that approach. The company entered court-led rehabilitation in 2013 after weak bulk shipping markets, expensive long-term charter contracts and excessive ship-finance debt. Its debt was unhealthy, but its global cargo-owner network and ship-management capabilities remained strong. In 2015, Harim Group and JKL Partners completed the acquisition through a roughly 1.079 trillion won rights offering. Pan Ocean reduced its debt ratio to the 100% range and exited rehabilitation after 25 months, reinvesting operating profits and asset-sale proceeds into debt repayment and fleet modernization.