Drawing Maginot Line
As the sale of Daewoo Engineering & Construction Co. has been struggling due to a fall in share prices, the Korea Development Bank (KDB) will hold an urgent meeting to set the lower limit on the sale value of Daewoo E&C on January 12. The bank is taking a strong measure of drawing the Maginot line of the sale price in order to calm the controversy over the sale at a giveaway price before the binding bid and to minimize the impact on Daewoo E&C when the sale fails.
According to the KDB and investment banking (IB) industry sources on the 7th, the KDB advisory group will discuss the lower limit on the sale price of the Daewoo E&C on the 12th and proceed the binding bid for the company on the 19th based on it. At the meeting, it will consider the possibility of the completion of the sale, the price of its stocks and the aftermath of a decrease in corporate value when the sale fails. Despite concerns over a poor value of the sale, the KDB will call for the binding bid on the 19th and make a final decision on whether to sell the company on the 23 depending on the results.
The KDB still maintain its stance of finalizing the sale of Daewoo E&C this time. A senior official from the KDB said, “The meeting will take place to develop a consensus on a reasonable price for the binding bid by setting the lower limit on the price of Daewoo E&C, not to discuss a delay of the binding bid. The price of shares is just one factor of pricing. The price should take account of future value overall.” Some market watchers say that the KDB is actually trying to set the line of the selling price of Daewoo E&C that cannot give in as the corporate value of Daewoo E&C will naturally go down when the sale falls through.
The binding bid will be participated in by Hoban Construction and Elion International. Hoban Construction offered 1.4 trillion won (US$1.32 billion) for Daewoo E&C. As the KDB, which invested more than 3 trillion won (US$2.82 billion) in Daewoo E&C, needs to sell the company at over 2 trillion won (US$.88 billion), Hoban Construction is not an attractive buyer in terms of price. In particular, Hoban has been recently selected as the preferred bidder for Resom Resort. Therefore, there are rumors that Hoban might give up the bidding for Daewoo E&C.
Under the given circumstances, a success in the binding bid for Daewoo E&C depends on financial resources and intention of acquisition of the other bidder, the consortium between Elion International and China State Construction Engineering Corp (CSCEC), the largest construction company in China, according to industry sources. How much Elion International wants to take over and is willing to pay for Daewoo E&C will determine the success of the binding bid.
There are also skepticism that the binding bid will be caught in the undertaking price. This is because the KDB is expected to provisionally put off the sale on the ground of the price after the binding bid. Daewoo E&C shares closed at 6,140 won (US$5.77) on the 5th, which was the 40 percent level of 15,000 won (US$14.09) that the KDB spent at the moment when it acquired a 50 percent stake of Daewoo E&C. The friendly forces in the political arena have also disappeared. The Liberty Korea Party changed its stance and issued a statement on the 4th that opposes selling Daewoo E&C at giveaway prices. It used to say that the bank should hurry and push ahead with the sale of its non-financial companies if they have the same market prices with those in the Saenuri Partyi years in the past.
The negative stance of Daewoo E&C’s labor union against potential buyers, who took part in the preliminary bid, is also a burden on the KDB. The union claims that there will be an outflow of the national wealth when a Chinese company takes over Daewoo E&C. In contrast, some say that it will be better to sell Daewoo E&C to a large construction company for survival of workers, rather than losing the competitiveness under the control of the KDB. An official from the IB industry said, “Elion International submitting a bid that is high enough to wipe out controversies is the only way to proceed the binding bid without noise.”