Doosan Group pulled out of the bidding for Daewoo Shipbuilding on Monday, hitting shares of the world's No 3 shipyard, while steel firm POSCO said it was seeking partners to make a bid. Shares in Doosan group companies rose after it said it would not bid for Daewoo, easing concerns over the financial health of the conglomerate, which has made a series of acquisitions including last year's $4.9 billion cash deal for the US-based Bobcat machinery business.
POSCO, the world's No 4 steelmaker and a strong candidate for the Daewoo deal, wants to partner with a financial firm and South Korea's National Pension Service (NPS) to bid for Daewoo Shipbuilding, said a source close to the situation. A POSCO spokesman said: "We have strong financial capability to fund the purchase, but are seeking financial and strategic investors as a strategic option and to improve the competitiveness of our consortium."
The developments reflect expectations that a hefty premium for Daewoo Shipbuilding could double the value of a deal to 8-10 trillion won ($7.8-$9.6 billion) and that tight credit market conditions are squeezing potential buyers. "The (POSCO) move is a strategic option to drive out competition as grouping with banks and the pension fund will squeeze other potential bidders who may be financially stretched," the source said.
The NPS said it had yet to decide who to team up with to bid for a 50.4 percent stake in Daewoo Shipbuiding, valued at around $4 billion at current share prices, put up for sale by the South Korean government. The source said bidding prices for Daewoo Shipbuilding may rise to nearly 10 trillion won to reflect a management premium and an expected rally in share prices after the official bidding process starts later this week.
State-run Korea Development Bank, Daewoo's top shareholder and the lead manager for the deal, said last week it would invite bidders this week. At least four bidders have expressed interest in Daewoo, including construction-focused GS group, energy-focused Hanwha group and shipping-oriented STX group, which said earlier it more than doubled its stake in Europe's top ship maker Aker Yards to 88.4 percent through a $635.5 million tender offer.
By 0530 GMT, shares in Doosan Heavy Industries were up 1.8 percent and Doosan Infracore rose 0.4 percent. Both had earlier risen 4-5 percent. Daewoo Shipbuilding fell 4.1 percent and POSCO was off 1.1 percent. "Doosan has judged that it would be more advantageous for now to focus on existing core businesses for competitiveness and growth strategies," Doosan group said in a statement.
"If Doosan bought Daewoo, it could create synergies but face financial problems in the short term ... however, premiums on Daewoo are not likely to fall given that other candidates remain committed," said Goodmorning Shinhan Securities analyst Cho In-karp.
POSCO, seen as a leading candidate because of its strong cashpile, is betting a deal would help secure future demand, protect against possible ship plate oversupply and aid diversification into non-steel sectors.
The consortium is not likely to include a shipbuilder, which some analysts have said would help enhance operational synergies, due to possible delays in the approval process, the source said. Global steel plate is in short supply due to booming demand for oil carriers and dry bulk carriers, but could go into oversupply after 2011 as steelmakers boost capacity and the shipbuilding sector slows.
South Korea wants to complete the Daewoo deal, which will be the country's biggest M&A event this year, in the second half, as it prepares to sell off firms such as Korea Development Bank, Incheon International Airport and Hyundai Engineering. The majority of Daewoo Shipbuilding was taken over by creditors in 2000 after its parent Daewoo Group collapsed under a mountain of debt.
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