By Park Hyong-ki
Staff Reporter
Rising stock prices are standing in the way of mergers and acquisitions of companies that are up for sale, leaving potential bidders hesitant to press ahead with their takeover plans.
For instance, shares of Daewoo Shipbuilding & Marine Engineering have more than doubled to around 60,000 won since the beginning of the year on booming business and consistent M&A speculation.
The bull run is not good for buyers or sellers. Rising stock prices will burden buyers to finance the purchase of such stocks for takeovers and make them think twice before doing so. Sellers, on the other hand, will see potential buyers losing interest and walking away from a buyout deal.
``High equity valuation of companies boosts premiums for management takeover, further widening the gap of prices sought after between buyers and sellers, thus burdening potential buyers,'' said an analyst from a U.S. investment bank in Seoul.
In the case of Daewoo, an investor would need at least around eight to nine trillion won to acquire the company at a premium from the Korea Development Bank and Korea Asset Management Corp., which hold a 50 percent stake in the world's third largest shipbuilder.
Daishin Securities analyst Choi Jai-sic said Daewoo's bullish shares works as a double-edged sword: ``It's good that the shipbuilder's value is going up on the back of strong global business, but the odds are its shares will climb further, and will likely slow the sale of the firm.''
There's also a high chance that the sale will hit a snag as its creditors are seeking to sell the firm only to domestic companies, which are less daring in making risky bets on buyout deals than their foreign peers, he said.
When it comes to M&As, Korea remains dull, although it cries out ``globalization through consolidations.''
Besides facing M&A obstacles such as heavy regulations and volatile labor, local firms are too busy building up their defense mechanisms against possible hostile takeovers by boosting friendly shares, buying back stocks and raising their share prices. Choi said these factors also idle corporate M&As in Korea.
Korea has one of the world's most poorest M&A scorecards. According to UBS Investment Bank, M&As only account for less than 5 percent of its GDP, while they are more than 10 percent for the European Union, Australia and Singapore. Korea's global M&As accounted for 0.3 percent of $3.91 trillion in total M&A volume last year, Thomson One Banker noted.
The most recent M&A achievement was seen by Doosan Infracore, which acquired Bobcat, a compact construction equipment business of Ingersoll-Rand.
``Our interest in Daewoo remains the same even though we are aware that its shares have climbed,'' said an official at Doosan Group, which also cited interest in acquiring Hyundai Engineering and Construction.
Shares of Daewoo Shipbuilding ended up 1,300 won, or 2.15 percent, at 61,700 won Tuesday.