Meritz Withdraws from Deal, MG Non-Life Faces Liquidation
Meritz Financial Group, South Korea’s second-largest financial holding company, has abandoned its bid to acquire the financially troubled MG Non-Life Insurance Co. This decision comes after the failure to reach an agreement with the labor union regarding job security.
With the sale of MG Non-Life having repeatedly fallen through, the likelihood of liquidation is now high, according to analysts.
Meritz Financial Group announced its withdrawal in a regulatory filing on Thursday, relinquishing its status as the preferred negotiating partner. In December, the state-run Korea Deposit Insurance Corp. (KDIC) had chosen Meritz Fire & Marine Insurance Co., a key subsidiary of the financial holding firm, as the preferred bidder.
“Although we were selected by the KDIC as the preferred negotiating partner to acquire MG’s assets through a purchase and assumption (P&A) transaction, disagreements with the MG labor union have led us to relinquish our status,” Meritz Financial stated in the public disclosure.
Meritz formally informed the KDIC of its decision following an earlier board meeting.
Labor Union Resistance
Meritz has been unable to perform due diligence on MG Non-Life since December, facing strong opposition from the labor union. The union demanded employment guarantees as a prerequisite for negotiations.
Meritz Fire & Marine aimed to acquire MG Non-Life through a P&A transaction. This type of transaction doesn’t legally require the guarantee of existing employment contracts, implying potential restructuring post-acquisition.
To address labor concerns, Meritz proposed retaining 10% of the current workforce and offered a severance package totaling 25 billion won ($17.2 million). However, unionized workers at MG rejected this offer.
MG Non-Life Insurance was put up for sale after the Financial Services Commission (FSC), South Korea’s financial regulator, designated it as a distressed financial institution in April 2022. The insurer’s capital adequacy ratio, a measure of financial stability under the Korean Insurance Capital Standard (K-ICS), was 43.4% at the end of September, far below the required 100%.
Other potential buyers, including Korea’s DAYLI Partners and J.C. Flowers & Co. of New York, showed interest but dropped their bids.
Liquidation on the Horizon
Following Meritz’s withdrawal, the financial regulators and the KDIC issued statements acknowledging the situation.
“It has been over three years since MG Non-Life was classified as a distressed financial institution. The prolonged delays in the sale process have further weakened the insurer’s financial health,” stated the Financial Supervisory Service.
The government is now considering options to address the MG Non-Life issue, emphasizing that future actions will adhere to legal and regulatory frameworks.
Earlier, the KDIC indicated that a failure to conclude the sale could result in more drastic measures, including liquidation or court receivership.
If MG Non-Life is liquidated, it would mark the first liquidation of an insurance firm in South Korea, affecting 1.24 million policyholders. Policyholders are guaranteed reimbursement of up to 50 million won in surrender value under Korea’s deposit protection laws. Additionally, liquidation would lead to job losses for approximately 600 MG Non-Life employees.
