KDB picks Jungheung as top bidder for Daewoo E&C

Daewoo Engineering & Construction headquarters in Seoul / Courtesy of Daewoo E&C

Gwangju-based builder offers W2.1 tril. in second bid

By Park Jae-hyuk

KDB Investment CEO Lee Dae-hyun speaks during a press conference at KDB Investment headquarters in Seoul, Monday. Courtesy of KDB Investment

Jungheung Construction was selected as the preferred bidder to acquire Daewoo Engineering & Construction by KDB Investment, Monday, beating a consortium consisting of real estate developer DS Networks, local private equity firm SkyLake Equity Partners and infrastructure investor IPM. The consortium was selected as a back-up bidder.

“We made the decision after taking into account the prices they offered, as well as their abilities to enable Daewoo E&C's growth and stable management,” KDB Investment CEO Lee Dae-hyun said in an online press conference after Monday's market closing.

He declined to disclose the specific prices the bidders offered, citing the non-disclosure agreements his company signed with the bidders.

The announcement was made after the state-run Korea Development Bank's (KDB) investment subsidiary caused a controversy last week for awkwardly allowing potential buyers to bid once more for the acquisition of a controlling 50.75 percent stake in the builder.

Jungheung reportedly offered 2.3 trillion won ($2 billion) in the initial bid, June 25, while the consortium led by DS Networks is said to have offered 1.8 trillion won. Industry sources said Jungheung offered 2.1 trillion won in the second bid.

According to the seller, one of the bidders asked it last Tuesday to revise the offers it made, including both the price and non-price terms. In response, KDB Investment informed the other bidder of the request and told both of them to submit their revised offers by the end of the week.

The financial institution explained that it was unable to comment on several local reports about this issue due to the need to keep the details of the sale procedure confidential.

The KDB subsidiary said that it has reviewed both the initial and revised offers from the bidders, along with the underwriters of the deal ― KDB's M&A department and Bank of America Merrill Lynch.

“The proposals from both bidders satisfied us to some degree, but we needed to review some of their terms,” KDB Investment said in a statement. “We have tried our best to achieve our goal in this deal, such as the price, guaranteed closing of the deal and better strategies for Daewoo E&C.”

KDB Investment has denied the claim that it chose to conduct a “rebid” to prevent Jungheung from dropping out of the race, due to the excessively high price it offered.

However, it seems to be difficult for the seller to avoid criticism for allowing the bidder to take over Daewoo E&C for a much lower price, despite the 3.2 trillion won worth of taxpayers' money injected into the builder to normalize its management.

The Daewoo E&C labor union has also condemned the rebid, saying in last week's press conference that the controversial decision was intended to support Jungheung. The union claimed that this decision should be regarded as malpractice.

In addition, an anonymous petitioner wrote on the Cheong Wa Dae website that the government and the National Assembly should investigate the deal.

A Daewoo Engineering & Construction union member shaves the head of union leader Shim Sang-chul in front of the builder's headquarters in Seoul, Friday, to protest KDB Investment's decision to sell the company. Yonhap

Daewoo E&C has been put up for sale several times over the past decade.

It was sold to Kumho in 2006 after the dissolution of Daewoo Group, but Kumho put the builder up for sale again in 2009 due to financial difficulties. It was sold eventually to KDB in 2010 as other Korean conglomerates were reluctant to buy the builder during the global financial crisis.

The state-run bank's previous attempt to sell the builder in 2017 fell through, because Hoban Construction, which had been selected as the preferred bidder, dropped out of the deal after realizing Daewoo E&C's large-scale loss from the Safi power station project in Morocco.

In 2019, KDB sold its Daewoo E&C stake to its subsidiary, KDB Investment.