By Lee Hyo-sik
KCC's decision to buy Samsung C&T's treasury shares is attracting keen attention from analysts and investors as to whether Korea's largest construction materials firm can reap financial gains from the transaction.
Most analysts say that given KCC's record, chances are the company will likely make money from getting involved in an escalating conflict between Samsung C&T and Elliott Associates, a U.S.-based vulture fund that recently acquired a 7.12 percent stake in Samsung Group's construction and trading unit.
They also say the deal could enable KCC to supply more construction materials to one of Korea's major builders.
KCC Chairman and CEO Chung Mong-jin is known for having the midas touch for investment in corporate shares.
On Wednesday, Samsung C&T sold its entire holdings of treasury shares to KCC, as part of its move to fight Elliott, which is seeking to prevent its merger with Cheil Industries. KCC bought all 8.99 million company-owned common shares, or 5.79 percent, for 674 billion won, or 75,000 won a share.
The transaction enabled Samsung C&T to boost its friendly stake by 5.79 percent to nearly 20 percent, putting itself in a better position at the coming shareholders' meeting. Shareholders will vote on the planned merger on July 17 and the deal needs a two-thirds majority to pass.
"From buying Samsung C&T stocks at 75,000 won per share, it is not easy to make money, given the company's recent lackluster performance," Daishin Securities analyst Lee Sun-il said. "I don't think KCC will be able to realize significant capital gains anytime soon. Our valuation suggests that Samsung C&T shares are priced at between 80,000 won and 90,000. It will take some time for the stock to reach that range."
Lee said the company stock may exceed 90,000 won a share if it creates a great deal of synergy with Cheil Industries.
"We think it will take at least three years for both companies to generate synergy," the analyst said. "Samsung C&T has an extensive overseas network and a diversified business portfolio. If the global construction industry rebounds, this will significantly boost its corporate value."
In addition, KCC may benefit from a strategic partnership with Samsung C&T by supplying more construction materials, he said. "KCC will likely form a greater business tie with Samsung C&T and other group affiliates following the recent deal. The company will gain more business opportunities from Samsung Group."
KCC has an extensive record of successful equity investment. KCC realized substantial capital gains from its investments in Hyundai Heavy Industries, Mando, Hyundai Motor and Cheil Industries, among others.
For instance, it bought an 8 percent stake in Hyundai Heavy in 2003 for 148 billion won, or 24,000 won a share. In 2012, it disposed of a 5 percent stake for 280,000 won a share, realizing huge capital gains. The company still holds a 5.31 percent share in the shipbuilder.
In 2008, KCC helped Halla Group take back control of its auto parts unit, Mando, and in the process realized nearly 500 billion won in capital gains.
In 2011, the company bought stakes in Samsung Everland, the predecessor of Cheil Industries. KCC now owns 10.19 percent of Cheil, realizing at least 2 trillion won in appraisal gain.
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| KCC CEO Chung Mong-jin |
Most analysts say that given KCC's record, chances are the company will likely make money from getting involved in an escalating conflict between Samsung C&T and Elliott Associates, a U.S.-based vulture fund that recently acquired a 7.12 percent stake in Samsung Group's construction and trading unit.
They also say the deal could enable KCC to supply more construction materials to one of Korea's major builders.
KCC Chairman and CEO Chung Mong-jin is known for having the midas touch for investment in corporate shares.
On Wednesday, Samsung C&T sold its entire holdings of treasury shares to KCC, as part of its move to fight Elliott, which is seeking to prevent its merger with Cheil Industries. KCC bought all 8.99 million company-owned common shares, or 5.79 percent, for 674 billion won, or 75,000 won a share.
The transaction enabled Samsung C&T to boost its friendly stake by 5.79 percent to nearly 20 percent, putting itself in a better position at the coming shareholders' meeting. Shareholders will vote on the planned merger on July 17 and the deal needs a two-thirds majority to pass.
"From buying Samsung C&T stocks at 75,000 won per share, it is not easy to make money, given the company's recent lackluster performance," Daishin Securities analyst Lee Sun-il said. "I don't think KCC will be able to realize significant capital gains anytime soon. Our valuation suggests that Samsung C&T shares are priced at between 80,000 won and 90,000. It will take some time for the stock to reach that range."
Lee said the company stock may exceed 90,000 won a share if it creates a great deal of synergy with Cheil Industries.
"We think it will take at least three years for both companies to generate synergy," the analyst said. "Samsung C&T has an extensive overseas network and a diversified business portfolio. If the global construction industry rebounds, this will significantly boost its corporate value."
In addition, KCC may benefit from a strategic partnership with Samsung C&T by supplying more construction materials, he said. "KCC will likely form a greater business tie with Samsung C&T and other group affiliates following the recent deal. The company will gain more business opportunities from Samsung Group."
KCC has an extensive record of successful equity investment. KCC realized substantial capital gains from its investments in Hyundai Heavy Industries, Mando, Hyundai Motor and Cheil Industries, among others.
For instance, it bought an 8 percent stake in Hyundai Heavy in 2003 for 148 billion won, or 24,000 won a share. In 2012, it disposed of a 5 percent stake for 280,000 won a share, realizing huge capital gains. The company still holds a 5.31 percent share in the shipbuilder.
In 2008, KCC helped Halla Group take back control of its auto parts unit, Mando, and in the process realized nearly 500 billion won in capital gains.
In 2011, the company bought stakes in Samsung Everland, the predecessor of Cheil Industries. KCC now owns 10.19 percent of Cheil, realizing at least 2 trillion won in appraisal gain.
