European M&As
One of the other reasons for the great interest is the abundant cash liquidity of the corporations, which amounts to 64 trillion won combined as of the end of Q3, 2012. They have increased their cash reserves continuously since the American financial crisis of 2008 to deal with domestic and global uncertainties. Listed Korean companies’ internal reserves add up to approximately 823 trillion won, too.
At the same time, the won’s rapid appreciation has added to the interest since the latter half of last year. Earlier in 2008, Japanese companies had been in an aggressive pursuit of M&A amid the strong yen. In 2011, when the value of the currency soared again, more than 600 companies were bought by Japanese corporations at a combined cost of US$70 billion.
The won has appreciated by over 9% and 5% vis-à-vis the US dollar and the euro each for the last one year or so, signifying that they can acquire the same company at a much discounted price now. Korean corporations are riveting their eyes particularly on the Italian, French and German firms failing to withstand the European financial crisis in a bid to secure original technologies, although the majority of the ongoing M&A deals are about consumer goods companies acquiring European fashion brands and the like. Two cases in point are Doosan Heavy Industries & Construction and Samsung Techwin, both of which are going for Ansaldo Energia. One of the subsidiaries of leading defense company Finmeccanica, which is going through financial difficulties, the Italian energy company owns original gas turbine technologies used in combined cycle power plants. Doosan Heavy and Samsung Techwin are having their eyes on Ansaldo Energia’s gas turbine and jet engine technologies, respectively.
Also, an increasing number of companies are pursuing M&A in an attempt to create new overseas markets. For instance, KT is in the process of acquiring shares in Maroc Telecom, the largest telecom operator in Morocco. The deal is estimated to be worth seven trillion won, the largest one of its kind in history launched by a Korean enterprise. KT is aiming to beat its stagnation in sales growth by supplying products and services already proven in the domestic market. Korean Air, on its part, is intending to participate in the tender for shares of the Czech Airlines scheduled for next month so that it can fare better in the European market.
A remarkable point is that those Korean companies are now much more adept at doing M&As than before. “The headquarters giving specific instructions and orders to their daughter firms, which is one of the corporate cultural elements unique to Korean companies, is found to be helpful in their proceeding with the deals as of late,” said the associate lawyer, “Nowadays, the negotiation teams are getting the inside track by taking advantage of the approval from the main office, unlike in the past when the working-level teams were not given a free hand to cause some inconvenience during the fast progress of the projects.”
Still, some industry watchers are pointing out that they should be wary of their competition resulting in a price-cutting race or the winner’s curse and the difficulties related to integrating themselves with too big a target. “What the Korean companies need the most in the M&A of foreign companies is not zeal or aggressiveness but caution and prudence,” one of them advised.