Bidding War Kicks Off for Ssangyong Construction
By Lee Hyo-sik
Staff Reporter
A bidding war is expected to heat up over Ssangyong Engineering & Construction as the state-run Korea Asset Management Corp. (KAMCO) and other Ssangyong creditors will put out a sales notice for the builder today. A number of domestic construction companies and private equity funds (PEFs) have expressed their interest in acquiring a majority stake in Ssangyong and the heated competition is projected to push the sales price up to around 700 billion won ($770 million), industry analysts said.
KAMCO said lead sales manager the Samjong KPMG & Socius consortium will accept letters of intent (LOI) from prospective buyers this month, select up to five bidders by the end of the year and choose a preferred bidder in February.
The state-run asset manager, the largest shareholder of Ssangyong with a 38.75 percent stake, is managing the sale of a 50.07 percent stake in the builder, including shares held by Shinhan Bank (4.58 percent) and Woori Bank (1.44 percent).
KAMCO had initially planned to find a new buyer last year, but it had to delay the schedule because of other sales, including Daewoo Engineering & Construction. It plans to sell the entire stake to the highest bidder and promote the sale in a merger and acquisition (M&A) format whereby a management premium can be received in order to maximize public fund retrieval.
In March 1999, creditors injected capital to rescue Ssangyong Construction from financial difficulties and received 11 million shares in return. The builder has posted operating profits since 2003 and completed a debt workout programs in October 2004.
Obstacles Ahead
As Ssangyong shares are currently traded at around 24,000 won, sales price of its 50.07 percent stake, or 14.9 million shares, could reach 358 billion won. But when adding the management premium, the price could go as high as 700 billion won.
Among others, Kyeryong Construction Industrial, Samwhan Corp. and Hanwha Construction & Engineering are considering bidding for Ssangyong to expand their construction business at home and abroad.
However, creditors' attempt to sell the builder to the highest bidder will likely face a stumbling block as Ssangyong employees are opposing the sale to a third party, vowing to make it a company owned and run by its workers.
Unlike other M&A cases, Ssangyong creditors should talk with the association first before putting the firm up for sale. In 2003, the Ssangyong employee association bought 18.9 percent of the shares in their firm. They also won approval from creditors for the employee stock ownership system, and acquired the right to buy an additional 24.72 percent stake in Ssangyong.
The association has claimed that regardless of the bidding prices, Ssangyong employees are entitled to purchase additional company shares from creditors at an ``appropriate'' price. It has said that employees should be able to acquire 24.72 percent stake at a reasonably set price, excluding managerial premiums.
It has also selected H&Q Asia Pacific, the National Pension Service's investment arm, as a strategic investor. It signed a memorandum of understanding (MOU) with the private equity fund to attract money needed to acquire the builder.
However, KAMCO and other Ssangyong creditors are saying that they will sell their Ssangyong shares to the highest bidder through open competition, arguing that the association should pay more than the highest bidding price in order to acquire the shares.
KAMCO officials said it is not possible to sell more than a 24-percent stake to the Ssangyong employee association on their terms because it is not the best way to recoup taxpayers' money spent to revive the distressed company, following the 1997-98 Asian financial crisis.