South Korea’s Hanwha Group plans to cut out a settlement with Samsung Group instead of going to the court to challenge the bigger conglomerate for violating their landmark merger and acquisition deals by overrating value and hiding defects in some assets as well as liabilities when selling off petrochemical and defense operations last year.

Hanwha purchased majority stakes in four chemical and defense arms of Samsung at combined 1.9 trillion won ($1.71 billion) in November 2014 and completed the acquisition last year.

Having spotted major pricing issue with the stock purchase agreements (SPAs) afterward, Hanwha has been preparing its case against Samsung to claim legal damages of at least 30 billion won for violating some terms. It estimated its losses from the deal to exceed 80 billion won.

The two are expected to work out a deal by the end of November and avoid a costlier court battle.

A Hanwha official said that the group hopes to resolve the valuation issue with Samsung on amicable terms. A company official at Samsung said that there had not been an official demand from Hanwha, but the group will respond “according to legal procedures” to address the questionable issues.

Hanwha completed acquisition of Samsung’s two chemical makers - Samsung General Chemicals and Samsung Total Petrochemicals - for 1.06 trillion won and two defense units - Samsung Techwin and Samsung Thales - for 840 billion won, respectively, last year.

Hanwha discovered some of the petrochemical operations were in a poor state and needs millions of dollars for repair or replacement for some key equipment including the heat exchangers. It also plans to file for tax redemption for paying more tax than it needed to for acquiring the faulty assets.

The damages could exceed 80 billion won, but under the terms, the conglomerate can only charge up to 3 percent of the 1.06 trillion won deal, which would come around to 31.8 billion won.

It also is investigating similar problems with the defense operations. Hanwha could face charges of negligence of duty from its shareholders if it does not take actions against violations in M&A deals.

By Kang Doo-soon and Yoo Tae-yang

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]