Big-Name Merger Talks Shaping Market

“This is only the beginning.”

An official of the Eugene Group, which took part in the competition to underwrite Daewoo Constructions but failed, says the competition for M&A has only begun. Eugene Group is receiving proposals from a number of enterprises for collaborating on the M&A business.

It is settled that Kumho Asiana Group will underwrite Daewoo Constructions, the biggest item for sale in the M&A market in the first half of the year (January to June), but the gigantic M&A that can turn over the landscape of the financial world remains in the continuous term.

The sales of LG Cards, awaiting the main phase of bidding in August, Hyundai Engineering and Constructions (HDEC), Daewoo Electronics, and Donga Construction are already in the process or will begin soon.

Though the specific schedules are not set yet, Woori Financial Group, Hynix Semiconductors, Daewoo Heavy Industries and Machinery (DSME), and SSangyong Constructions are all waiting in line to be sold.

The aggregate value of listed stock (stock price multiplied by the number of stocks) of the items on sale or those that will soon be released to the M&A market is above 50 trillion won.

The Scramble for Hyundai Engineering and Constructions, Coming Soon! –

The creditors of HDEC, who had waited for the sale of Daewoo Constructions to be closed in order to raise the price, will begin the sales process by selecting the lead manager of the purchase this month. The creditors will sell 50.35 percent of the aggregate stock of HDEC. In the business circle, the sale price is predicted to surpass six trillion won.

The strong candidates for the purchase of HDEC are the affiliates of the pan-Hyundai family such as the Hyundai Group, the Hyundai Heavy Industries Group, and the KCC Group. Those who failed to purchase Daewoo Construction, Doosan, Hanwha, and Eugene are showing signs to take part in the competition as well.

The enterprise that purchases HDEC, whose assets total 5.112 trillion won, will see its rank in the business world rise straight up.

Doosan Group is expecting to see a synergy effect between that and the Doosan Heavy Industries, and Hanwha Group is planning to cultivate business in construction in order to expand the resort business. Eugene Group has prepared a budget of 400 billion won by selling its blue chip company Dreamcity Media.

In addition, 14 companies including Kyung Nam Enterprise handed in their applications for underwriting Donga Constructions. The main phase of bidding for the purchase of Daewoo Electronics will start with five companies in total, four of which are foreign companies.

The Future of Hynix and Daewoo Heavy Industries and Machinery-

It is predicted that DSME, Hynix and Woori Finance, which will be released in the market next year, might find it difficult to find buyers due to their large size and the sentiment that they should be undertaken by “native” companies.

DSME, equipped with the highest level of technology in the world, is not likely to find a foreign purchaser since it contains the securities business that produces battleships and submarines, and since leakage of technology is a big concern. “If DSME is sold to a foreign enterprise, the technology leaked in the course can come back like a boomerang to threaten the survival of HDEC and Samsung Heavy Industries,” said a DSME official.

The aggregate value of listed stocks of Hynix at the close of July 7 was 13.9313 trillion won. About five trillion won is required to seize the creditors’ equity of 35 percent and managerial control. The likely candidates are large domestic enterprises such as LG Electronics and Posco. Woori Finance is set to be sold by March 2008. There are sentiments that we shouldn’t let foreign capital buy it, but few domestic financial firms have the power to purchase Woori Finance, whose aggregate value of listed stocks is estimated to be worth 14 trillion won as long as the principle of “the separation between finance and industry” is maintained.

SSangyong Constructions is scheduled to resume its sales procedures after its largest creditor, Korea Asset Management Corporation, finished the sales of Hyundai Constructions.

Jin-Young Hwang buddy@donga.com