Doosan to Acquire Daewoo Heavy

Doosan Heavy Industries & Construction Co. will acquire Daewoo Heavy Industries and Machinery Ltd. at 1.8973 trillion won.

With the acquisition, Doosan Heavy will be the nation’s largest heavy industries company, and its corporate ranking is expected to jump from 12th to ninth among non-public corporations.

At the same time, the Fair Trade Commission is examining whether Doosan’s acquisition of Daewoo would violate the law which prohibits a unit of a conglomerate with more than five trillion won in assets from investing more than 25 percent of the unit`s assets in other firms.

The Public Fund Oversight Committee gave approval to Doosan Heavy yesterday to acquire Daewoo after a briefing about the negotiation result from the state-run Korea Asset Management Corp.

The Korea Asset Management Corp., which is the biggest shareholder of Daewoo Heavy, will sell 31 percent of its 34.2 percent Daewoo shares to Doosan. Korea Development Bank will hand over a 20 percent stake out of its 21.9 percent to Doosan. The stock is priced at 22,150 won per share, and the total acquisition will cost 1.8973 trillion won. The stock sales contracts will be signed today.

Doosan can keep up to 250 billion won if its assets and liabilities do not match after a five-week due diligence period.

The government injected 2.9 trillion won public funds to Daewoo Heavy, which used to include Daewoo Shipbuilding & Marine Engineering Co., Ltd., to rescue the company, and it will collect 2.2 trillion won back with the acquisition.

It is expected that the government will be able to collect the remaining 880 billion won rather smoothly as the Asset Management Corp. holds 20.9 percent of DSME’s shares.

The Fund Oversight Committee said, “We maximized the collecting amount of the public funds because we sold the Daewoo Heavy’s shares at a higher price than recent prices (7,000 to 9,000 won per share) by reflecting the management premium.

Daewoo Heavy was spun off in 2000 from its predecessor which underwent workout in August 1999, and completed the workout process in November 2001 through management normalization.

Concerning whether Doosan would violate the law on a conglomerate’s investment ceiling, Vice Chairman Jo Hak-gook of the Fair Trade Commission said yesterday, “Doosan Heavy will be considered as being in the same industry with Daewoo Heavy if Doosan’s machinery sales account for more than 25 percent its total sales.”

Doosan said that, according to an authoritative interpretation by law and consulting firms, companies in the same industry are recognized as exceptions of the law.

Chi-Young Shin Keuk-In Bae higgledy@donga.com bae2150@donga.com