Doosan Infracore actually won the lawsuit sued for failing to fulfill a contract with a financial investor (FI) during the establishment of a Chinese subsidiary (DICC). The amount of the lawsuit was estimated at 800 billion won, including the delayed interest. As Doosan Infracore manages to win, the sale negotiations are also expected to speed up. The investment banking (IB) industry is putting weight on the possibility of an agreement between Doosan Infracore and FIs as the court decision is finalized.
Doosan Infracore excavator. (Photo = Doosan Infracore)
On the 14th, the Supreme Court broke the court case in appeal of a lawsuit against Doosan Infracore by investors such as Odin 2 and returned the case to the Seoul Court. The court ruling ruled that Doosan Infracore pay 10 billion won, part of the lawsuit, to investors. The billing amount recognized by the lower court was 79.3 billion won, but the amount specified by the plaintiff was 10 billion won, so the order was marked as 10 billion won.
With this ruling, a revocation court trial will be held. However, as the Supreme Court ruled that Doosan Infracore is not obligated to pay the stock trading price, the lawsuit is expected to end with Doosan Infracore’s victory.
The Supreme Court ruled that even though Doosan Infracore did not fulfill the contract with the investor, it did not have the national speed to fulfill the right to request a joint sale (Drag Along). Drag-Along is a system that allows investors to sell stocks of major shareholders or other shareholders on the same terms when they sell their stocks. This is an unfavorable provision for the issuer because investors can sell their majority shareholders’ shares for the purpose of exit.
Doosan Infracore established DICC in a situation where financial resources were insufficient due to the acquisition of Doosan Bobcat in 2007. When I tried to collect the investment money forcibly, I set up’jachungsu’.
Diary of Doosan Infracore DICC litigation (Source = Doosan Infracore, etc.)
The dispute between Doosan Infracore and FI goes back to 2011. FIs such as Mirae Asset Asset Management invested 380 billion won in 2011 on the condition of holding a 20% stake in DICC. Doosan Infracore and FI decided to list DICC by 2014, and FI decided to recover the investment.
FI signed a drag-along agreement to sell up to Doosan Infracore’s DICC stake (80% owned stake) if it is not listed within the period. It has prepared a safeguard against the recovery of invested capital by investors. However, DICC was not listed, and FI tried to exercise drag-along, but it failed.
FI prepared an investment statement for the sale of DICC shares in 2015, and requested data from Doosan Infracore. FI received only some of the requested data and the proceedings for the sale of its stake were halted. FI filed a lawsuit that Doosan Infracore was obligated to pay for stock trading against the principle of good faith.
The first trial court ruled that Doosan Infracore had no obligation to pay the trading price. The second trial court ruled with the intent to pay 709.3 billion won by reflecting a 20% stake (380 billion won) in FI and a 15% internal rate of return as compound interest. However, the court ruling was overturned in the Supreme Court.
The Supreme Court admitted Doosan Infracore’s negligence, but ruled that it had no binding force to pay the stock trading price. The Supreme Court said, “It is reasonable to judge the court below for violating the obligation to cooperate because the plaintiff (FI) did not properly provide the materials such as the investment introduction.” It is difficult to say that it interfered with the
The Supreme Court said, “The contract on the exercise of the right to request a joint sale does not specify who will sell the shares of DICC and how much is the sale amount.”
The Supreme Court concluded that Doosan Infracore was not cooperating with the request for data, but based on this, it could not be seen as impeding the sale of its shares.
The Supreme Court saw that there was no obligation to repay the stock trading price because the contract between Doosan Infracore and FI was not specific. The Supreme Court said, “In order for a contract to be established, there must be a specific agreement between the parties on important matters or at least an agreement on specific standards and methods to be specified.” “The sales contract can be established only if it is specifically specified.”
The Supreme Court added that the exercise of drag-along becomes similar to an M&A that sells DICC’s management rights to a third party. The Supreme Court ruled, “The procedure until the conclusion of this contract is very complex, which creates uncertainty.”
The Supreme Court acknowledged Doosan Infracore’s logic to a large extent, and it is said that it ended with Doosan Group’s victory. The investment banking industry predicts that there is a high possibility of an agreement between Doosan Infracore and FI.
This is because, as the Supreme Court destroyed and repatriated, it would take several years for the legal dispute to proceed again. Doosan Infracore is negotiating a sale with Hyundai Heavy Industries Group. The two sides plan to sign the main contract on the 31st of this month. As the seller’s risk related to the DICC litigation has disappeared, it is said that it is advantageous for FIs to negotiate. This is because the imminent sale of Doosan Infracore can be leveraged to derive the maximum settlement amount.
An IB official said, “As Hyundai Heavy Industries Group is highly willing to take over Doosan Infracore, it is highly likely to sign a main contract this month.” Explained.
Meanwhile, the ruling is expected to leave a significant impact on the market. Doosan Infracore’s DICC lawsuit is the first conclusive judgment issued by the court in relation to Drag-Along. After the first trial ruling was issued, the IB industry was concerned that the drag-along provision could become ineffective. If the sale of shares is tolerated due to the non-cooperation of major shareholders, large-scale investments in companies may become difficult.
The Supreme Court said, “This ruling will serve as a guide to the practice of interpretation of provisions commonly found in contracts between investors and shareholders.” It is difficult to admit it as an obligation.”