POSCO ahead of 2 bidders in synergy with Korea Express

By Kang Seung-woo

POSCO is ahead of two other bidders for Korea Express, the nation’s largest logistics company, in terms of expected post-merger synergy, securities analysts say.

Along with the steelmaker, retail goliath Lotte Group and food specialist CJ Group, which submitted letters of intent (LOI) in early March, are gearing up to purchase the major stake in Korea Express, each claiming prospects of strong synergy with their respective existing businesses.

Market watchers say that the bidding will be a hard-fought given that POSCO and Lotte are already major clients of Korea Express and CJ can rise as a powerhouse in the logistics sector as it would be merging with the group’s existing logistics.

Korea Express however is in favor of the world’s No. 3 steelmaker.

“POSCO will be able to make the most of joining forces with Korea Express. When POSCO expands to markets overseas, Korea Express can oversee the distribution network and handle the cargo more efficiently,” said a Seoul-based economist on condition of anonymity due to the sensitivity of the issue.

“In addition, the steelmaker has POSCO Engineering and Construction under its wing, making it quite convenient when developing the real estate owned by Korea Express.

Above all, POSCO is armed with stacks of cash. Even though it pays a high price to take over the logistics firm, it will not be a victim of a winner’s curse like Kumho Asiana Group,” the economist said

The Kumho Asiana Group paid 6.6 trillion won for Daewoo E&C, including put-back options) in 2006 but ended up selling a 37.2-percent stake early this year to the Korea Development Bank for about 2.1 trillion won, a severe aftereffect of the global financial crisis of 2008.

The KDB, the main creditor of cash-strapped Kumho Asiana, is seeking to sell the 37.6 percent stake in Korea Express held by the group’s two main subsidiaries ― Daewoo Engineering and Construction and Asiana Airlines ― to wrap up the restructuring of the group. Daewoo owns 18.62 percent of the logistics firm, while Asiana holds an 18.98 percent interest.

Another economist, who did not want to be identified, said that POSCO has an edge.

“The takeover of Korea Express will help POSCO to lower logistics costs and to boost its competitiveness in the steel industry,” she said.

“For Korea Express, it can emerge as a global logistics firm as it forays into overseas markets holding hands with POSCO.”

A third analyst came up with question marks over Lotte and CJ.

“Lotte has grown to be ranked the nation’s fifth largest conglomerate through mergers and acquisitions (M&As), but it is questionable that Lotte would see synergy in this deal,” he said.

“As for CJ, it falls behind POSCO and Lotte in terms of funds. In addition, the logistics industry is not one in which an existing company can see synergy after taking over another.”

They estimated the transaction, once completed, would be the biggest takeover deal in the first half of 2011 and the stake that is up for sale is expected to fetch more than 2 trillion won ($1.86 billion).

The KDB plans to accept final bids by May 13 after allowing the three prospective buyers a one-month due diligence on Korea Express and the KDB plans to pick a preferred bidder by May 16 to finalize the deal by the end of June.

However, the sale may be delayed due to disagreements on how to sell the logistics firm’s affiliate.

More specifically, the top two major holders ― Daewoo and Asiana ― have not agreed on how to sell Kumho Terminal.

Asiana, which plans to repurchase Korea Express’ three subsidiaries including Kumho Terminal, wants a piecemeal sale, while Daewoo insists on selling Kumho Terminal together with Korea Express to raise the sale value.

As a result of the indecision, the KDB has not finalized a bidding guideline.