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| Daewoo E&C's headquarters in Seoul / Courtesy of Daewoo E&C |
By Baek Byung-yeul
Daewoo Engineering and Construction (E&C) is struggling with attracting new buyers as big-sized companies are paying more attention to emerging businesses such as biotechnology and IT rather than conventional construction businesses in the local M&A market.
KDB Investment, a corporate restructuring arm of the state-owned Korea Development Bank (KDB), has selected Bank of America Merrill Lynch as the sale supervisor and planned to sell all of its 50.75 percent share, sources familiar with the issue said, Monday.
Preferred negotiators for the controlling stake in Daewoo E&C will be decided in July, with the final bidding process following in August. The builder's market capitalization stands at around 3.59 trillion won ($3.2 billion), and the 50.75 percent stake is valued at between 1.8 trillion won and 2 trillion won.
Thoughts are that now is the time to sell off its stake to find a new owner because the construction business is expected to see a visible upturn this year as a smoother massive vaccination campaign will clearly help the economy recover from the pandemic.
However, the builder has failed to attract attention from large companies at this point as only mid-sized builders and private equity funds have shown interest in acquiring stakes. Currently, DS Networks, Skylake Investments, IPM Consortium and Jungheung Construction are cited as the potential candidates for the company, while China State Construction, Abu Dhabi Investment Authority and Hahn & Company have also been showing interest in the deal, among other financial and strategic investors, said the sources.
Industry officials said they are putting more priorities in acquiring emerging businesses such as renewable energy and biotechnology as part of their efforts to find new growth engines.
"Most of the country's conglomerates have already been doing construction. Even if they acquire Daewoo, it is crystal clear that they will have to spend a lot of money and time to create synergy between their construction arms and Daewoo. This has led the big company to join the M&A race," an official in the local construction industry said.
The official also showed a skeptical opinion about mid-sized construction firms acquiring Daewoo. "When considering the annual salary difference between the acquired company and their current construction company, there will be a significant difference. In that sense, the acquisition process may not be easy," the official added.
Following the dissolution of Daewoo Group in 1999, the business group's construction arm had been acquired by Kumho Asiana Group in 2006. But a severe liquidity crunch forced Kumho Asiana to sell off the firm in 2009. Then KDB took over a major stake in 2011. In 2018, the state-run bank designated Hoban Construction as a preferred bidder for the firm's sale, but the acquisition was scrapped.
It also remains to be seen how the management of Daewoo E&C can overcome the difference of opinions with its union. Shim Sang-chul, leader of the union, has criticized KDB Investment's move to sell off its stake in Daewoo E&C for below market price.
"Daewoo E&C has shown a great performance in overseas plants and it has generated high profits in the housing business. At a time when the company is expected to see a rise in the housing business over the next two or three years, the major stakeholder is trying to push ahead its plan to sell off its stake at a low price," Shim said at a recent press briefing the union had at the KDB building.
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