"Somebody is After Us"

Daewoo and Ssangyong E&Cs, which are pursuing their sales, are not free from the chances of M&A by speculative capitals.

Vice Researcher Baek Sung-joon of the Construction and Economy Research Institute advised a prudent selling, saying, “As construction firms directly own neither factories nor equipments, it might only leave shells behind depending on the buyer’s intention.”

Apprehension for a Recurrence of the Namkwang E&C Case –

Namkwang E&C is reckoned as a case of a turnaround company that was driven back to a crisis because of a new owner.

This company was sold to Golden Asset Planning in July 2003. President Lee Hee-heon of Golden Asset Planning decided to take over the Namkwang E&C at 4.38 billion won and paid four billion won as a down payment. He paid most of the balance by taking out a loan with the security from depositing 30 billion won worth in certificate of deposit (CD) that he bought with the Namkwang E&C’s bank account.

In other words, the company was bought by the very company’s money.

President Lee was arrested on the charge of misappropriation of public money, and the company was back on the M&A market. The KOSDAQ company Aldex recently became the heavy stockholder, seizing the opportunity when the stock price fell sharply.

In the process, Namkwang E&C suffered a loss of 57 billion won, and the order reception conditions worsened.

Daewoo and Ssangyong E&Cs Review Employee-run Holding Companies Also –

Creditor groups of Daewoo E&C including the Korea Asset Management Corporation (KAMC) selected the Samsung Securities consortium as the main superintendent in selling the company. The sale of Ssangyong E&C is also under way by the KAMC.

Although the buyer is uncertain, it was known that there is a high chance that a foreign capital will embark on the negotiations. President Park Se-heom of Daewoo E&C stated recently at a gathering of journalists, “I hope the company will be sold to (someone) who is willing to do business and has love for the construction business rather than speculative capitals.”

Apprehensive of the sales results, the staffs of Daewoo and Ssangyong E&Cs are considering taking over the rights of management in the form of employee-run holding company as well.

The labor union of Daewoo E&C is reviewing the purchase of stocks held by the KAMC with the retirement grants of its members.

The Sssangyong E&C’s employee stock ownership association has the right to buy 50 percent of the stocks held by creditor financial institutions preferentially. It was known that the association is preparing ways to raise the fund necessary for the stock purchase.

Particularities of the Construction Business Should be Considered when Selling a Company –

Construction experts all agree that the characteristics of the business, an industry of receiving orders, should be considered when selling a construction company.

It takes a long time to build one product (public works, buildings), and the prices reach some 10s to 100s in billion won when it comes to the construction industry. It means that if a buyer cannot win the trust of the market, he won’t be able to take a construction order, which will lead to management crisis.

Thus, it is pointed out that various verifications including fund raising methods, business strategy, long term plans, and construction history should be reviewed when screening the qualifications for buying a construction company.

Eun-Woo Lee libra@donga.com