Hyundai Heavy, Hanwha gear up for Daewoo Shipbuilding acquisition

SEOUL, Oct. 17 (Yonhap) -- A two-way competition is poised to heat up between
Hyundai Heavy Industries Co. and Hanwha Group for the acquisition of Daewoo
Shipbuilding & Marine Engineering Co., with a final winner likely to be selected
next week, watchers said Friday
State-run Korea Development Bank, which is arranging the sale of a controlling
stake in Daewoo Shipbuilding, said on Thursday it would disqualify POSCO, the
world's fourth-largest steelmaker, as a potential buyer for Daewoo Shipbuilding.
The decision came after POSCO's consortium partner, GS Group, suddenly pulled out
of the deal over a price disagreement with POSCO. The two had agreed to make a
joint bid for a controlling stake in the world's third-largest shipbuilder .
POSCO and the three other potential buyers had offered preliminary bids for a
50.4-percent stake in Daewoo Shipbuilding, which some analysts said would fetch
over US$5 billion.
"It is true that a two-way race for the acquisition is totally different from a
three-way or a four-way one," said an analyst at Woori Investment & Securities,
who asked not to be identified. "It is still murky which one will come out on
top."
Hyundai Heavy, which is the world's largest shipyard and holds an ample supply of
cash, is teaming up with affiliates such as Hyundai Mipo Dockyard Co. to take
over its domestic rival, claiming that the acquisition would generate a synergy
effect for the company and its partners.
Daewoo Shipbuilding's labor union, however, has voiced opposition against Hyundai
Heavy's bid as the rival would likely lay off workers at Daewoo Shipbuilding.
Chemical and energy-focused Hanwha Group, in the meantime, may face difficulty in
financing the acquisition, as the deal, set to be this year's biggest merger and
acquisition, comes amid worsening global financial turmoil, watchers said.
South Korea's benchmark index, the KOSPI, has slid 36 percent this year in line
with the global financial rout, which makes it difficult for Hanwha to raise
funds.
Some newspapers report that the group may pay 7 trillion won ($5.2 billion) for
the stake. Hanwha is seeking to sell part of its stake in Korea Life Insurance
Co., the country's second-largest life insurer, to fund the deal. The group is
also in talks with some local banks to raise money for the acquisition of Daewoo
Shipbuilding.
"There is a growing risk involved with any mergers and acquisitions in the
current financial market," said Lee Jae-won, an analyst at Tong Yang Securities.
Some watchers cautiously raised the possibility that KDB may cancel the sale
should bidders submit prices below expectations amid a flagging local stock
market.
KDB wants at least 5 trillion won for the sale, but market capitalization of
Daewoo Shipbuilding reached slightly over 3 trillion won as of Friday, a sharp
drop of nearly 45 percent from its peak in October.
The deal has drawn much attention from bidders as the winner will likely gain a
new growth engine from the shipyard's lucrative energy-related business and
strong cash flows.
So far this year, Daewoo Shipbuilding has won around $11 billion worth of orders
to build ships and offshore facilities, which accounts for about 62 percent of
this year's target of $17.5 billion.
Its order backlog has reached about $42 billion. Last year its sales climbed 32
percent to 7.1 trillion won.
South Korea, home to seven of the world's top 10 shipyards, secured record orders
both last year and this year because of strong demand for crude carriers and
offshore exploration equipment amid high oil prices.