The Korean government of President Kim Dae-jung's wants LG Semicon to merge with Hyundai Electronics Industry to cut out overlapping investments by the country's computer chipmakers and boost their competitiveness.
Hyundai and LG, the nation's largest and third largest conglomerates, agreed in September to merge their chipmaking subsidiaries. But talks have hit an impasse because of a fight over who should rule the merged company.
The government supports a U.S. consulting firm's recommendation that Hyundai become the majority shareholder in the new venture. LG says it cannot accept the proposal because it was biased in favor of Hyundai.
LG Semicon's 13 creditor banks, most of them state-controlled, today held LG responsible for foiling the merger and stopped providing new funds to the heavily indebted company, according to the wire service.
The banks threatened to call in LG Semicon's existing loans as well unless it accepts the merger.