Acquisition Battle
Petronas, a world-class energy company, will press ahead with the acquisition of Daewoo E&C, following global players including Saudi Arabia’s Aramco who revealed its will to take part in a bid for Daewoo E&C to be held within this year. Such moves are raising a possibility that Daewoo E&C will be sold off for a higher price. Its estimated selling price is about 2 trillion won (US$1.8 billion).
According to Reuters and the local investment banking (IB) industry on August 31, Malaysia’s Petronas is considering the acquisition of the Korea Development Bank’s 50.75% stake in Daewoo E&C including the management right. Petronas will participate in taking over Daewoo E&C in October after reviewing Daewoo E&C's business structure, financial conditions and business performances by September. Petronas is said to be planning to forge a local consortium with Maybank and CIMB.
The Korea Development Bank is planning to put up a notice of the sell-off of Daewoo E&C at the end of this year and finalize the sell-off process by early next year after selecting the preferred bidder among Korean and overseas participating companies. Petronas is the largest state-run enterprise in Malaysia and is a huge energy developer with annual sales of 100 trillion won. Petronas is called one of the "seven princesses in the oil industry" because the company gives a strong influence over the formation of crude oil and natural gas prices all over the world along with Gazprom of Russia, Petrobras of Brazil, and Aramco of Saudi Arabia.
Petronas is reportedly pushing for the acquisition of the Korean builder to diversify its oil-oriented revenue structure. This is because as most of its current sales come from oil exploration and sales, earnings easily fluctuate due to external factors related to oil prices. The global energy industry is currently suffering severe business performance deterioration as crude oil prices which stayed at the US$150-a-barrel level once fell to US$40 in 2008.
Petronas went forward with a natural gas project in Canada but recently the project was thwarted. Rather, this fact is raising a possibility that Petronas will acquire Daewoo E&C. Petronas attempted to invest US$27 billion in Pacific Northwest, a liquefied natural gas export terminal company, at the end of last year, but gave it up in July. The price of international natural gas fell from US$12 per MMBtu in 2008 to US$3 per MMBtu this year, slashing profitability by a quarter. Holding up the natural gas project in Canada boosted Petronas’s financial power for other M&As. Petronas did not hide its desire to its focus on the energy business to other industries.
Other global players are also interested in buying Daewoo E&C one after another. Saudi Arabia’s state-run oil company Aramco, the largest shareholder of S-OIL, has also announced its intention to acquire Daewoo E&C to overcome a long-term low oil price frame. Since early this year, Aramco has reportedly visited Daewoo E&C concealedly several times.
Abu Dhabi's state-owned investment corporation ADIC which once tried to purchase Daewoo E&C in 2009, is considered a potential buyer. One Chinese contractor and one US contractor expressed their will to acquire Daewoo E&C as well.
Experts analyze that overseas companies are interested in Daewoo E&C because of Daewoo E&C’s reputation and brand power in the Middle East and Southeast Asia as well as proven record in winning nuclear power plant orders. According to a source in the construction industry, "Daewoo E&C is a company that is highly recognized for its nuclear technology prowess all over the world as the builder exported research reactors to Jordan last year."
"We will hold road shows and IR events to explain to 110 overseas companies about Daewoo E&C starting next month through a lead manager," said an official of the Korea Development Bank. “Southeast Asian and Middle Eastern companies have steadily contracted us a number of times."