Who Will Take Over Daewoo Heavy Industries & Machinery?

The Sept. 14 deadline is nearing for the final bidding on Daewoo Heavy Industries & Machinery (DHI), anticipated to be one of the largest mergers and acquisitions (M&A) this year.

DHI separated from the former Daewoo Heavy Industries in the heavy construction machinery and defense product field, and with the efforts for a workout and the special procurements from China, brought soaring results.

The bidding for the takeover had started out with some 10 enterprises and investment funds, but Rotem, a rolling stock maker of the Hyundai Motor Group, announced officially that they would give up the bidding.

--Who joined the bidding?

Inside the country, Doosan Heavy Industries, Hyosung, Hanwha and the Pantech consortium are participating in the bidding.

Doosan Heavy Industries and Hyosung are trying to expand in the heavy machinery industries field through the acquisition. Hanwha and the Samyoung-Tongil Heavy Industries consortium are interested in DHI’s armored vehicle production line, and are focusing on the defense sector, in which demands are expected to increase highly.

The Pantech consortium had a different view, announcing, “We want to make heavy machinery that does not need the help of a person by integrating the heavy machinery with wireless communication technology.”

Outside the country, the U.S. private equity group Carlyle and JP Morgan participated. Carlyle has made huge profits by investing in the defense industry, but the Korean government has made it clear that the group may only take over the heavy construction machinery division out of concerns about leaks in information related to defense industry.

--Prospect of the sale

Korea Asset Management Corp. (KAMCO), which is in charge of the sale, announced that it would sell off DHI’s 28-percent stake of Korea Aerospace Industries (KAI) together with DHI, which is a huge variable affecting the sale. KAI is an aerospace corporation which was established with 289.2 billion won financed through investment in-kind from the “big deal” of former Daewoo Heavy Industries, Samsung Techwin and Hyundai Space and Aircraft in 1999. Recently, the advanced training aircrafts and multipurpose helicopter business was pointed out for reconsideration in the feasibility study by the Board of Audit and Inspection, and is undergoing difficulties. Rotem has decided to give up the bidding with the uncertainty of KAI.

Another variable is that the Pantech consortium and the DHI employee stock ownership association (ESOP) have joined hands.

The sale price is the most important in an M&A, but when the protests from the workers and the atmosphere of the group in power is considered, Pantech consortium, which has already secured the support of the workers, may receive a better score than the other bidders.

In the industrial field, over 80 percent of DHI’s union members agreed in participating in the takeover, but the important fact is that they are the ones who will be paying, and so many are forecasting that the final decision is still flexible.

Do-Young Kim nirvana1@donga.com