Hyundai Group Wins Bidding for Former Construction Unit

The Hyundai Group has outbid the Hyundai-Kia Automotive Group for Hyundai Engineering & Construction with a higher-than-expected bid of more than 2 trillion won (1.7 billion U.S. dollars).

If the Hyundai Group completes the takeover by signing an agreement in early February next year after conducting due diligence, the builder will return to its original owner a decade after its spinoff in 2001.

Despite the higher-than-expected bid, fears in the Korean stock market grew Tuesday over the “winner’s curse” as suffered by the Kumho-Asiana Group, which faced a liquidity crisis after taking over Daewoo Construction & Engineering in 2006.

Creditors seeking to sell stakes of Hyundai Engineering & Construction held a news conference Tuesday at the Westin Chosun Seoul to announce the Hyundai Group’s consortium as the preferred bidder and that led by the automotive group as the secondary bidder.

The Hyundai Group bid 5.5 billion won (4.8 million dollars), or 410 billion won (363.6 million dollars) more than the automotive group’s 5.1 trillion won (4.5 billion dollars). The winning bid also exceeded the market expectation of 3.5 trillion to 4 trillion won (3.1 billion to 3.55 billion dollars) that includes a 34.88-percent stake or 38.8 million shares and premiums.

“We checked non-price factors such as financing plan and financial capability aside from the bidding price,” a source with the creditors said. “Less than a one-point difference separated the two on a scale of one to 100.”

The Hyundai Group submitted a plan on paying the entire 5.5 trillion won (4.8 million dollars) in cash by March next year. Given that creditors purchased the builder’s stocks for around 20,000 won (17.74 dollars) per share, they are expected to rake in a combined profit exceeding 4.7 trillion won (4.1 billion dollars) by selling their stakes.

Among creditors holding more than a seven-percent stake, Korea Exchange Bank (8.72 percent), Korea Financial Corp. (7.84 percent) and Woori Bank (7.46 percent) are each set to earn 1 trillion won (890 million dollars) in profit.

Hyundai Group Chairwoman Hyun Jung-eun said, “Since we’ve recovered Hyundai Engineering & Construction that the late group chairmen Chung Ju-yung and Chung Mong-hun founded and developed, we’ll do our best with the builder’s employees to bring legitimacy to the Hyundai Group and restore our past glory.”

If the Hyundai Group acquires the construction company, its rank among Korean conglomerates based on assets will rise from 21st to 14th following Doosan and Hanwha.

With fears growing over how the Hyundai Group will fund the deal, the stock of Hyundai Merchant Marine, its core company, dropped by its daily low limit Tuesday (14.95 percent). Other Hyundai Group subsidiaries such as Hyundai Elevator and Hyundai Securities saw a similar drop.

Hyundai Engineering & Construction fell close to the daily limit (14.91 percent) and Tong Yang Securities (7.56 percent), a member of the Hyundai Group’s consortium, also plummeted.

In contrast, stocks of the Hyundai automotive group`s affiliates rose a little as it became free from uncertainty over joining the bid.

cha@donga.com imsoo@donga.com