Negotiations between the two companies stalled last week when LG Semicon refused to give Hyundai Electronics a 70% majority stake in the new merged company. But talks were reported to be back on again on Tuesday.

The merger would create the world's second largest memory chip producer.

But LG Semicon has painted itself into a corner. On Monday, one of LG Semicon's major creditors cut off fresh loans to the company because of its refusal to accept Hyundai as the senior partner. The South Korean government has also threatened to do the same if the company does not comply with Hyundai.

Chips are down

LG Semicon has already delayed completion of its plant at Newport in South Wales. Last year, Hyundai postponed plans to build its own chip plant at Dunfermline in Scotland. The plants had been expected to create 3,000 new jobs between them, but the Asian crisis put a stop to both projects.

Seoul wants the merger as it would form the world's second largest memory chip maker

In September the two companies agreed to merge their chip-making businesses as a part of a wider overhaul of South Korea's leading conglomerates.

Arthur D. Little, the US consultancy company brought in to advise on the merger, has recommended that Hyundai should take control.

LG Semicon immediately challenged the consultant's assessment saying ADL had brought in no semiconductor experts to work on the report, that the report unfairly compared the two companies and that LG had never signed a contract hiring ADL.

Lee Chong, vice president of LG Group's office for corporate restructuring, said a "third party opinion" was now needed."