Hyundai Mobis scraps controversial merger plan

SEOUL, June 12 Reuters reported that Hyundai Mobis Co, the auto parts division of South Korea's largest automaker, said on Wednesday it will not merge with an affiliate, Bontec Co, easing investor concerns about corporate transparency in the group.

Bontec, which makes car audios, airbags and other auto components, is part of the Hyundai Motor Group, which includes Kia Motors Corp (KSE:00270.KS - News), the nation's second largest automaker.

Some analysts had said a merger would have boosted Mobis' manufacturing capacity, but others criticised the move as signalling a hereditary transfer of management control -- which used to be a common practice among South Korean conglomerates.

A son of Hyundai Motor Chairman Chung Mong-koo is a majority shareholder in Bontec.

"It is our final decision not to merge with Bontec," Jang Yoon-kyung, a spokesman for Hyundai Mobis, told Reuters.

"The decision was based on views that did not look positively on the merger, citing management transparency concerns," he said.

Hyundai Mobis shares closed up 3.7 percent on Wednesday at 28,000 won, while the broader stock market index (KSE:^KS11 - News) ended up 0.95 percent.

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Analysts applauded the decision, saying corporate governance rather than increased production capacity was a more pressing concern at the former unit of the Hyundai Group , once the biggest of the South Korean family-owned conglomerates.

"It's a great improvement for the chaebols," said Suh Sung-moon, an auto analyst at ING Barings, in a reference to the country's business conglomerates.

"It means Hyundai Motor's companies started listening to the market's voice," he said.

The research arm of Daishin Securities forecast this month that if the merger was pushed through it could boost the production capacity of Mobis, resulting in a 6.5 percent rise in sales this year and 8.9 percent in 2003.

Hyundai Mobis expects to beat its 3.28 trillion won ($2.71 billion) sales target for this year.

The company saw its first quarter net profit rise 131 percent on the year to 107.2 billion won on surging sales at Hyundai Motor and Kia Motors.

Mobis, formerly Hyundai Precision Industries, formed tie-ups with global parts makers last year, including a technological alliance with Robert Bosch GmbH and an arrangement with Textron Automotive Trim to make driver seat modules.

But Suh at ING Barings said the scrapped merger does not necessarily mean a loss for Mobis in terms of production capacity.