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LG Magna e-Powertrain JV agreement includes 20% penalty Either party can buy or sell shares at discounted or premium price in case of material breach

Translated by Ryu Ho-joung 공개 2021-12-08 08:10:15

이 기사는 2021년 12월 08일 08:06 더벨 유료페이지에 표출된 기사입니다.

South Korea’s LG Electronics and Canadian auto parts supplier Magna International included clauses imposing a 20% penalty on a party that commits a material breach in their joint venture agreement.

LG Magna e-Powertrain, the joint venture between the two companies, was established in South Korea in July, about a half year after the partnership was announced in December last year. The joint venture is 51% owned by LG Electronics and 49% owned by Magna Metalforming GmbH, the Austrian subsidiary of Magna.

According to the joint venture agreement, if one party commits a material breach of the agreement, the other party can buy the stake in the venture held by the responsible party at a price 20% lower than the fair value, or sell its stake to the responsible party at a price 20% higher than the fair value.

The joint venture agreement contains similar penalty provisions for the violation of a non-compete agreement, although the penalty rate ranges from 10% to 20% of the fair value.

Both companies can also exit their partnership by buying the other party’s stake or selling its stake to the other party at the fair value in case the venture can no longer be managed jointly due to a conflict of opinions between the two companies or there is any change in the controlling ownership.

The fair value of the venture can be estimated by two accounting firms, which are selected by LG Electronics and Magna Metalforming. If the difference between the estimates is less than 10%, the average will be used as the fair value. Otherwise, a third accounting firm will be hired to conduct another valuation, and the average of the two closet estimates will be used as the fair value. (Reporting by Choong-hee Won)
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