By Kim Yoo-chul
Staff reporter
POSCO, Korea's top steel maker, is finding itself in pole position in its competition with Lotte to take over Daewoo International, a trading firm with a heavy portfolio of overseas resource exploration, sources say, foreseeing it as a `` cash battle.''
The creditors of Daewoo are giving the highest priority to the amount of money to be offered in the selection of a priority negotiator. On that account, POSCO is leading the race with Lotte.
``We don't see any big hurdles to acquiring up to 68.15 percent of Daewoo International,'' a POSCO official said.
The deal is expected to be worth somewhere between 3.5 trillion and 3.6 trillion won.
According to the Korea Asset Management Corp. (KAMCO), POSCO and Lotte Group have already submitted their final bids.
Officials at KAMCO said the steelmaker offered to pay at least 3.5 trillion won or $3.03 billion. The share value is estimated at 2.4 trillion won plus the management premium of 40 percent of the value of the stake.
``Price will be the top consideration for the stake. Non-price factors such as how to fund the acquisition and management capability would be secondary issues,'' a top-ranking KAMCO official said, asking not to be identified due to the sensitivity of the issue.
KAMCO is planning to pick the top negotiator by the end of this month, according to officials.
Meanwhile Lotte is very keen to take control of Daewoo's overseas trading networks and oil exploration projects.
Lotte is interested in securing a 24 percent stake in Kyobo Life held by Daewoo International, though some industry sources remain skeptical about Lotte's fund-raising ability.
Shares of POSCO rose 2.12 percent to end at 482,500 won, while those of Daewoo International retreated by 2.12 percent to end 34,700 won.
Analysts have reached a broad consensus that cash-abundant POSCO has been leading the race. POSCO has already allocated half of its internal cash reserves just for M&As.
As of the end of last year, cash-equivalent assets owned by POSCO were close to 7 trillion won.
``The deal, when it materializes, will also help us to wash off chronic worries that POSCO had been hesitant to engage in bigger acquisitions deals under the chairmanship,'' a POSCO executive said.
POSCO is interested particularly in Daewoo's iron ore and base metals.
The world's fourth-biggest steel manufacturer is on the lookout for acquisitions through its supply chain to lift its supply of raw materials and win steady customers, as consolidating iron ore producers raises cost volatility.
The source of some 25 percent of Daewoo's annual sales come from POSCO as POSCO uses Daewoo's networks to ship its steel products.
Lotte said that it needs Daewoo. Lotte, which is thought to have offered about 100 billion won less than POSCO, has an edge in non-price factors, according to analysts.
Lotte, whose business strengths range from insurance and retail to foods, needs Daewoo International for its expansion plan into Russian and Chinese markets.
``We need Daewoo to strip off the domestic-focused company. Daewoo's overseas networks will add some momentum to our future at a time when Lotte is concentrating on retail and petrochemical-related businesses,'' a group official said, adding its lower debt ratios makes it a well-qualified new owner.
For all of last year, Daewoo reaped 11.14 trillion won in total sales. Operating profit was 171 billion won, while debts totaled 2.5 trillion won.