South Korea’s chemical and battery firm LG Chem would push to merge with LG Life Sciences, a biopharmaceutical unit of LG Group, as part of its efforts to diversify businesses.

The two companies announced on Tuesday that they have reviewed various plans including merger without disclosing details. But they said the option of merger through stake purchase is not in the consideration.

If the merger deal is achieved, businesses of the chemical company would be extended to the bio business from the existing petrochemical, IT material businesses. The company has so far cited energy, water and bio businesses as three main growth drivers and made efforts to diversify businesses.

LG Chem acquired crop protection and fertilizer producer Dongbu Farm Hannong at 424.5 billion won ($384 million) in April to add the agriculture and agrichemical businesses. The crop protection and fertilizer producer was re-launched as FarmHannong and its capital was increased through issuance of new shares worth 300 billion won in order to improve financial structure. LG Chem Vice Chairman Park Jin-soo, who assumed the role of FarmHannong chief executive officer, pledged to build FarmHannong to become one of the global leading companies in the green bio sector and pledged more M&A deals.

The possible merger between LG Chem and LG Life Sciences would help the chemical company set up a strategy to expand the bio business. It would strengthen new growth engines in the long term.

LG Life Sciences could make the most of abundant cash to invest in research and development. The company was established by spinning off from LG Corp. in August 2002 and has carried on research and development in a pneumococcus vaccine and a polio vaccine.

The market capitalization of LG Chem came to 17.69 trillion won and that of LG Life Sciences, 1.11 trillion won.

LG Chem held about 1.7 trillion won in cashable assets in the second quarter and is able to create cash of 600 billion won in every quarter.

LG Chem shares ended on Tuesday at 251,500 won, down 15,500 won, or 5.81 percent, from the previous session.

By Hong Jong-sung

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