By Kang Seung-woo
POSCO is flexing its muscles in the M&A market.
Flush with cash and a strong business model, the world’s No. 3 steelmaker has just acquired Daewoo International, a trading firm with extensive rights to explore natural resources.
Now, attention is focused on predicting the next move by the steelmaker who, under its Chairman Chung Joon-yang, seems to be seeking the next target in its expansion effort to find future growth engines.
Could it be acquiring Daewoo Shipbuilding and Marine Engineering or gaining a stake in the Woori Financial Group?
As expected, company officials as well as CEO Chung are holding their cards close to their chest, not dropping any hints.
“We do not have any plans (to take over Daewoo Shipbuilding and Marine Engineering) yet,” the 62-year-old told reporters after the takeover of Daewoo International.
Once POSCO tried to take over Daewoo Shipbuilding but the deal fell through after its partner GS Group balked at the last minute. Still, that was before Chung’s time whose leadership makes an enticing promise that its acquisition of the shipbuilder remains as strong as before.
By and large, POSCO is not moving capriciously, using its cash reserves to take over any firm that comes their way. There seems to be a certain strategy.
As for Daewoo International, its primary interest lies not in its trading arm but rather in its rights for natural resources around the world. POSCO knows that the success of its business depends on how it can secure resources in a timely manner without being subject to the ups and downs in international commodity prices.
POSCO struck a deal with the state-run Korea Asset Management Corp. (KAMCO) to acquire a 68.15 percent stake in the top local trader for 3.37 trillion won ($2.28 billion), its biggest ever takeover. KAMCO owns a 35.5 percent stake in the trading and energy firm, while other creditors, including the Export-Import Bank of Korea, KDB Asset Management and the Korea Development Bank, own a combined 32.65 percent of the firm.
On the acquisition of the nation’s No. 2 ship maker, POSCO has repeated that the shipbuilder is not for sale at the moment.
“It is not put up for sale in the market, so we don’t have anything to say about it,” a POSCO official told The Korea Times. He, however, didn’t rule out making a possible bid when it is on the block. POSCO is prepared to actively pursue M&As relevant to its main business and related ones domestically, while the company focuses on expanding its portfolio in the steel industry overseas.
Daewoo Shipbuilding is also closely related to its steelmaking business, the shipbuilding industry has an insatiable demand for steel.
The temptation for Chung to do what his predecessor couldn’t may prove to be too strong for the determined CEO to pass up.
“It is not for sale yet,” Chung said at the CEO forum in January.
“As we have no funding problems, we will not be in any trouble, if we should acquire both Daewoo International and Daewoo Shipbuilding and Marine Engineering,” said former CEO Lee Dong-hee. Lee is likely to head Daewoo International.
Sometimes, POSCO appears not to be sticking to its set of M&A rules. This can cause some investors to wonder whether it is over-expanding or what the ultimate goal of its M&A strategy is.
POSCO is in talks to buy Norway’s Elkem, according to some reports.
The company is considering a takeover of the Norwegian silicon maker for solar panels in an action which would give the Korean company a presence in the fast growing renewable energy materials industry. The report also said that POSCO has hired Citigroup as its advisor, but the steelmaker denied the report.
Elkem, owned by conglomerate Orkla, could cost Posco around $1 billion, based on the company’s financial figures and analyst research notes.
Besides, Woori has approached KT, a telecom giant, and POSCO to ask each of them to buy around a 5 percent stake and collectively run the financial holding firm.
ksw@koreatimes.co.kr