A damages lawsuit filed by the IMM Private Equity (PE) and IMM Investment consortium against global private equity firm KKR over its acquisition of Ecovit is set to gain momentum roughly 10 months after it was filed around September last year.
According to the investment banking (IB) industry and legal circles Friday, documents related to the damages suit sent by the Seoul Central District Court to the defendant have been delivered to KKR. As a result, the court is expected to set the first hearing date during the second half of this year and begin full trial proceedings.
The lawsuit has progressed somewhat slowly due to complex procedural issues. The special purpose company (SPC) that sold Ecovit on KKR's side is located in Canada, and the layered governance structure spanning the fund manager, the fund and the SPC made it take considerable time to accurately identify the parties for service and litigation.
The scale of Ecovit's leachate-related defects is understood to have been larger than initially known in the market. As a result of detailed due diligence conducted by IMM, it was confirmed that leachate leaks and related measures such as business suspensions occurred not only at the Cheongju site, where defects were previously known, but also at the Gumi site and others. Accordingly, IMM's damages claim amount may also increase somewhat beyond initial expectations.
Earlier, the IMM consortium acquired 100 percent of the Ecovit stake held by KKR and Taeyoung for 2.07 trillion won in early last year as part of the Taeyoung Group's self-rescue measures. However, shortly after the acquisition, leachate was found at some sites, prompting IMM to voluntarily report it to relevant authorities and launch large-scale repair works, with the sites in question halting operations.
The IB industry has watched this lawsuit as a clash between Korea's leading homegrown private equity alliance and a global private equity giant. Ahead of the lawsuit, a court partially accepted, at IMM's request, a provisional seizure of accounts held by KKR's SPC, so the two sides' legal arguments are expected to unfold in earnest once the actual trial begins.
Some observers, however, predict the lawsuit will end more anticlimactically than expected. A first-instance ruling is expected to take at least several months, and considering appeal procedures, it is unclear how many years it may take to reach a final conclusion. Given the nature of private equity, which must grow corporate value and recoup investments within a set period, some analysts say a final court ruling may not emerge before the IMM consortium sells Ecovit's management control again.
As the two firms are likely to have many opportunities to collaborate in domestic and overseas capital markets going forward, a further souring of relations from this lawsuit could also be a burden for both sides. For this reason, some expect the two sides could reach a settlement at a middle ground.
In fact, cooperation between the two firms continues. In the recent bid to sell a stake in SK Telecom's Ulsan artificial intelligence (AI) data center, KKR formed an alliance with IMM Investment and Stonebridge Capital and was selected as the preferred bidder. This reflects the rationalism characteristic of private equity, in which litigation proceeds on its own track while the parties join hands anytime on deals that make economic sense.
"Lawsuits over breaches of representations and warranties in M&A tend to become long battles, so both sellers and buyers inevitably feel great fatigue," an IB official said. "The possibility of reaching a settlement during litigation cannot be ruled out."
