Doosan Group’s Success Fueled by Mergers and Acquisitions

“Though organic growth is important, acquiring sturdy companies is the shortcut to growth.”

Business circles are closely watching the actions of the Doosan Group these days. After successfully acquiring Daewoo Heavy Industries and Machinery, the group is rapidly gaining ground as it has jumped into the battle for Jinro, the best corporate buy this year.

There are two ways through which a company can grow. The first is self-growth through technological development and business expansion. Samsung Electronics and POSCO are some cases in point.

The second method is the U.S.-style growth tactic of acquiring companies to see extraordinary growth in a short period of time. GM and GE have pursued this method.

Doosan has chosen the latter path, which is unusual in Korea. It judged that acquiring sound companies was the best way to enhance both future profits and scale when internal growth has hit an upper limit.

Vice Chairman Park Yong-man seeks a mergers and acquisitions breakthrough-

Doosan underwent an all-out restructuring under Vice President Park Yong-maan after receiving consulting advice from McKinsey Corp. in 1995. The goal at the time was to sell non-mainstream businesses and generate cash. By selling even OB to foreign companies, Doosan’s 23 affiliates shrunk to four, and it safely survived the foreign financial crisis.

However, a problem arose. Though it succeeded in increasing profitability by reducing its size, its future growth engines were weak.

Vice Chairman Park jumped into mergers and acquisitions in 2001 using the money generated from scaling down and succeeded in three major mergers, such as the Korea Heavy Industries (currently Doosan Heavy Industries and Construction) merger, the Korea Industrial Development (merged with Doosan Industrial Development) merger, and the Daewoo Heavy Industries and Machinery merger.

The group’s sales have jumped steeply from 2.4 trillion won in 1998 to an estimated 11.4 trillion won in 2005.

Buying good companies at an expensive price?-

When the bidding prices for Daewoo Heavy Industries and Machinery were revealed last year, the business community was surprised. While its competitor, the Hyosung Group, bid 1.3 trillion won, Doosan had written in a bid of as much as 1.8 trillion won (22,150 won per share). At the time, Daewoo Heavy Industries and Machinery’s stocks were valued at about 9,000 won.

Though it had succeeded in suppressing its competitor, there was criticism that the price was too high, and this led to a fall in Doosan Heavy Industries and Construction’s stock. Doosan also bid 8,150 won per stock, much higher than the company’s stock value of 3,800 won, for Korea Heavy Industries in 2001.

Business circles expect that Doosan will offer a high price in the Jinro bidding as well. The sale is slated for late March.

Regarding the matter, Vice Chairman Park refuted criticism, saying, “We have never offered a price surpassing the true value of the company. While competitors have tried to acquire good companies cheaply, Doosan has offered to pay the true worth of the companies.”

Pursuing mergers with foreign companies-

Like foreign companies, Doosan has a mergers and acquisitions team comprised of six employees who have formerly worked at consulting firms or PEFs. Under Park’s leadership, this team heads the group’s merger and acquisition plans.

To achieve its goal of 100 trillion won in sales by 2020, Doosan is planning to depend 50 percent on internal growth and 50 percent on corporate acquisitions, while increasing its dependency on foreign sales to 90 percent. To this end, it will focus its efforts on penetrating the foreign infrastructure equipment market and acquiring local companies through Doosan Heavy Industries and Construction and Daewoo Heavy Industries and Machinery.

Thus, Doosan is expected to become a group that acquires foreign companies as well as domestic ones.

Do-Young Kim nirvana1@donga.com