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Cash crunch forces Doosan Infracore to sell machine tools unit
Excavators being tested at Doosan Infracore’s plant in Gunsan, North Jeolla Province. / Courtesy of Doosan Infracore
By Lee Hyo-sik
By Lee Hyo-sik
Sohn Dong-youn Doosan Infracore CEO
Doosan Infracore, the construction equipment making unit of struggling Doosan Group, is set to unload its profitable machine tools division to secure much-needed cash, company officials said Monday.
Multiple entities, including Kohlberg Kravis Roberts (KKR) and MBK Partners, have expressed interest in acquiring the division, according to the officials, who said Doosan will receive a final bid from them next week.
The companies are currently conducting due diligence on the machine tools unit. After reviewing the terms of the bids, the firm plans to select a preferred bidder late this month.
Doosan Infracore, headed by CEO Sohn Dong-youn, seeks to get more than 2 trillion won for the division. However, the bidders are reportedly willing to pay no more than 1.5 trillion won.
“I cannot say exactly when the sales process led by the Credit Suisse will end because things don’t always go as planned,” a Doosan Infracore spokesman said. “But as far as I know, the company will get the offers from bidders next week and choose a preferred bidder by the end of December.”
He said the company had no other choice but to downsize its operations, hit hard by the prolonged global economic downturn. In particular, a slowdown in China, the world’s largest construction market, has wreaked havoc on Doosan’s bottom line.
The company sold about 6,900 construction vehicles in China in 2014, down 69 percent from 2010, with its Chinese market share plunging to 8.2 percent.
“Expecting the global construction market would continue to boom, we invested lots of money until 2012 to expand our production capacities. But this came back to bite us as China lost growth momentum,” the spokesman said. “We now have to sell some of our operations to raise cash and downsize our workforce to save costs.”
The machine tools division has been Doosan Infracore’s most profitable unit for the past four years, generating over 10 percent of its operating profits. The decision to dispose of its cash cow shows how desperate the company is to secure liquidity.
Its sales and operating profit have fallen since 2011 as China’s construction boom chilled, with little sign of recovery.
Doosan Infracore’s third-quarter profit fell to 20.2 billion won, down from 98.8 billion won in the second-quarter. It also posted a 212 billion won net loss, reflecting its deteriorating financial health.
Early this month, the company unveiled a wide range of cost-saving measures in a bid to bolster its worsening bottom line. To save about 300 billion won annually, it decided to cut the number of executives by 30 percent and dismiss hundreds of employees through a voluntary retirement program.
The firm also decided to stop the operations of its money losing plants in Brazil and other countries.
“It is projected that the global construction equipment market will shrink by more than 25 percent this year from 2014 and the Chinese market by 50 percent,” the spokesman said. “The world’s No.1 company has dismissed 30,000 workers and closed 20 plants. Through 2018, it plans to dismiss 10,000 more workers. This shows how bad the construction equipment industry is.”