Doosan drops out of race for DSME

Doosan Group pulled out of the bidding for Daewoo Shipbuilding while the Korean steel firm POSCO is seeking partners to make a bid.

Shares in Doosan group companies rose after it said it would not bid for Daewoo, easing concerns over the financial health of the conglomerate, which has made a series of acquisitions including last year’s $4.9 billion cash deal for the U.S.-based Bobcat machinery business.

POSCO, the world’s No.4 steelmaker and a strong candidate for the Daewoo deal, wants to partner with a financial firm and South Korea’s National Pension Service (NPS) to bid for Daewoo Shipbuilding, said a source close to the situation. A POSCO spokesman said: “We have strong financial capability to fund the purchase, but are seeking financial and strategic investors as a strategic option and to improve the competitiveness of our consortium.”

The developments reflect expectations that a hefty premium for Daewoo Shipbuilding could double the value of a deal to 8-10 trillion won ($7.8-$9.6 billion) and that tight credit market conditions are squeezing potential buyers. The POSCO move is a strategic option to drive out competition as grouping with banks and the pension fund will squeeze other potential bidders who may be financially stretched,” the source said.

The NPS said it had yet to decide who to team up with to bid for a 50.4% stake in Daewoo Shipbuilding valued at around $4 billion at current share prices, put up for sale by the South Korean government. The source said bidding prices for Daewoo Shipbuilding may rise to nearly 10 trillion won to reflect a management premium and an expected rally in share prices after the official bidding process starts later this week.

State-run Korea Development Bank, Daewoo’s top shareholder and the lead manager for the deal, said last week it would invite bidders this week.

At least four bidders have expressed interest in Daewoo, including construction-focused GS group, energy-focused Hanwha group and shipping-oriented STX group, which said earlier it more than doubled its stake in Europe’s top ship maker Aker Yards to 88.4% through a $635.5 million tender offer.