By Lee Hyo-sik
Doosan Infracore, the construction equipment unit of struggling Doosan Group, will not get the price it wants for its machine tool business as potential bidders are unwilling to pay more than what it is worth, according to industry sources, Tuesday.
Three entities were confirmed to have submitted bids to the manager of the sale, Credit Suisse, for Doosan’s most profitable division. The bidders are MBK Partners, Standard Chartered Private Equity and Fair Friend Group, a machine tool maker in Taiwan.
Industry officials say that either MBK or Fair Friend Group will likely be selected as the preferred bidder later this month.
The bidders reportedly expressed their willingness to pay between 1.2 trillion won and 1.3 trillion won for the division, falling short of 2 trillion won that Doosan Infracore has been expecting to earn from the sale.
Despite the significant price gap, Doosan is widely expected to unload the machine tool unit at whatever price the buyer is willing to pay, as the company is desperate to secure much-needed cash to improve its worsening bottom line.
“We don’t know many details about the sale process because Credit Suisse is handling this,” a Doosan Infracore spokesman said. “After reviewing the terms of the bids, we will select a preferred bidder before the year’s end. I would like to complete the sale in March.”
The machine tool division has been Doosan Infracore’s most profitable unit for the past four years, generating over 10 percent of its operating profits. In the third quarter, the division earned 300 billion won in sales and a 30.4 billion won operating profit.
The decision to dispose of its cash cow shows how desperate the company is to secure liquidity.
Infracore has been hit hard by the prolonged global economic downturn. In particular, the slowdown in China, the world's largest construction market, has wreaked havoc on the company’s bottom line.
Doosan Infracore 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.
The company’s third-quarter profit fell to 20 billion won, down from 128.4 billion won in the second-quarter. It also posted a 212 billion won net loss, reflecting its deteriorating financial health.
Earlier 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.