Andrew Wood in Seoul: Its a big deal to reduce duplication in the industry

The chip deal will create one of the largest chip makers in the world, second only to Japan's NEC, but could affect thousands of jobs in Scotland and Wales.

The future of LG's planned new semiconductor factory in Newport, South Wales hangs in the balance as Hyundai is already committed to its own UK operation, in Dunfermline, Scotland.

Hyundai agreed to pay 2.56 trillion won ($2.15bn) for LG Semicon in a deal that only came about after a lot of prodding from the government.

Under the deal, Hyundai will pay LG 1.56 trillion won in cash and securities and the remaining one trillion won in instalments until June 2002.

Restructuring

Park Se-yong, the man behind Hyundai's radical restructuring

At the same time Hyundai announced a massive restructuring of the group, effectively splitting the company into five independent units by 2003.

Hyundai, whose total assets of 88.8 trillion won ($74bn) are larger than Malaysia's 1998 gross domestic product of $73.35bn, said it would transform itself into companies focusing on electronics, cars, heavy industry, construction and finance.

"In reality, Hyundai Group would completely be dismantled," said Park Se-yong, chairman of Hyundai's corporate restructuring committee.

Hyundai will spin off its auto division by 2000 and the other four divisions by 2003.

Hyundai said it would slash its debts by 33.9 trillion won ($28.3bn) to 45.4 trillion by the end of this year.

That would lower its debt-to-equity ratio to 199% by end-1999, against 449% at the end of last year - a promise met with scepticism by financial experts.

Crisis point

The de-merger and the semiconductor deal itself are part of a wider restructuring of South Korea's economy, prompted by Asia's economic crisis.

When the troubles spread to South Korea, many of the country's debt-burdened and sprawling conglomerates, or chaebol, came close to collapse.

The restructuring is designed to close failing businesses and merge struggling companies.

Daewoo, for example, recently announced that it would sell its loss-making shipbuilding business - the second-largest in the world - and another 25 subsidiaries to focus on car making.

Some business analysts say that the semiconductor deal could indeed mark a major victory for the government in its bid to clean up the corporate sector.

Others, though, have their doubts. They note that most past promises by the nation's top conglomerates have gone unfulfilled.

The drive for reform has met intense resistance from South Korea's powerful family-owned conglomerates.

Analysts doubt whether Hyundai's reorganisation will actually meet the government's demands.

"Basically, I think the plan is unrealistic," said Lee Keun-mo, research head at KEB Salomon Smith Barney Securities.

Many economists believe that the five companies will be headed by sons and other relatives of Hyundai group founder and patriarch, 83-year-old Chung Ju-yung. Chip deal

The boss of Hyundai Electronic, Kim Young-Hwan, said the merger of the two chip makers would be completed by 30 June.

He assured workers that there would be no lay-offs as a result of the merger and that Hyundai would maintain 100% of both workforces.

Both companies have seen a series of rolling strikes to protest against potential lay-offs.

Scotland or Wales?

If Hyundai says no to South Wales, the prospect of hundreds of highly qualified jobs will disappear

However, he has yet to comment on the future of LG's planned development of a new semiconductor factory in Newport.

The £1.4bn investment could provide up to 2,000 jobs, but Hyundai has already started building a new plant in Dunfermline.