Brokerage reports 'positive outlook' on Doosan merger raises overvaluation concerns

This October 2022 file photo shows Doosan Bobcat's Statesville plant in North Carolina. Courtesy of Doosan Bobcat

A growing number of retail investors are expressing frustration over a series of what they consider "misleading" reports of brokerages on the much-disputed merger plan of Doosan Group's two affiliates of widely differing revenue capabilities, market watchers said Sunday.

Many say the merger of Doosan Robotics, a loss-making robot manufacturer, and Doosan Bobcat, a lucrative compact equipment manufacturer, will come at the expense of the Bobcat shareholders' interests.

Propelling the criticism is a share exchange ratio of 1 to 0.63. This means they will receive 0.63 Robotics shares for every Bobcat share. The Bobcat affiliate generated about 1 trillion won ($721 million) in operating profit last year. The Robotics affiliate reported 19.1 billion won in operating losses in the same period.

Currently, Doosan Bobcat's majority shareholder is Doosan Enerbility, the group's nuclear power affiliate. Doosan says the merger, in which Bobcat becomes a wholly-owned subsidiary of Robotics, will be concluded in the first half.

"The brokerages are rarely held accountable over overvaluation reports," an industry insider said.

"The losses will fall entirely on investors, if they increased holdings of the shares in question based solely on the overweight, or buy, recommendation reports."

According to FnGuide, a financial data service provider, not a single report recommended underweight, meaning sell, in the two weeks that began July 11, the date of the group's merger plan announcement.

Meritz Securities was among the brokerages that offered a positive outlook on the merger.

A total of four overweight recommendations were made for Enerbility. Three overweight recommendations, including a short-term holding, were made for Bobcat. One overweight recommendation was made for Robotics.

Only two, or 0.02 percent, of the total 8,662 reports released in the five months that ended May 31 had made recommendations to sell.