Creating Anew
As Doosan Group Chairman Park Yong-maan served as the head of the strategy planning division from 1995 to 2005, he transformed Doosan Group to overcome successfully the 1997 Asian financial crisis through radical restructuring.
Instead of selling consumer goods companies, which had led the growth of the group such as Nestlé Korea, Kodak Korea and 3M Korea, he decided to buy heavy industries and construction companies, which are now propping up the group. Park in his forties was once nicknamed as “Mr. M&A” as he led the business financing project team and M&As at that time.
Considering the current conditions of Doosan, it shows the drastic transformation which reminds of the company at the Asian financial crisis. First, the company made the decision to sell its profitable business of Doosan Infracore, which was the the Achilles’ tendon of the group financial structure. This is the measures to prevent selling it at the giveaway price when the group is in a tight corner by selling it when they can sell it. The group is shutting down the business, which suffers from financial difficulties, but enters the lucrative consumer business, which the company once discarded such as duty free shops.
Doosan Infracore held the board meeting on Nov. 10 and decided to sell its machine tool business division, including the management rights. In a bid to improve the financial structure with debt ratio of 186 percent on an individual basis and some 200 percent on a connected basis, the company sought to separate the machine tool business, maintain the management rights and sell some shares to financial investors earlier. Since the business has continuously shown some 10 percent of the operating profits ratio in the past three to four years, the company did not consider selling the management rights. This was because the company was worried that the profitability will plunge if it sells the construction machinery business as the figure of the remaining construction machinery and engine divisions stood at as low as 5.6 percent and 2.5 percent, respectively.
However, Doosan accepted the request of investors considering the fact that concerns over the financial structure in the market will grow further when the share sale is delayed due to delayed negotiations. If Doosan Infracore sells the business division at 2 trillion won (US$1.73 billion), it can significantly reduce the debt ratio below 100 percent.
The group is also accelerating the sale of Doosan DST, its defense business division. Doosan DST is owned by FI with a 49 percent stake and Doosan Group with a 41 percent stake, and Doosan Group has a preemption preference. However, industry sources believe that Doosan will give up the right and agree to sell its 100 stakes.