Hyundai, Hanwha gear up for Daewoo battle

A two-way competition is poised to heat up between Hyundai Heavy Industries and Hanwha Group for the acquisition of Daewoo Shipbuilding & Marine Engineering Co., with a final winner likely to be selected this week. State-run Korea Development Bank, which is arranging the sale of a controlling stake in Daewoo Shipbuilding, said it would disqualify POSCO, the world’s fourth-largest steelmaker, as a potential buyer for Daewoo. The decision came after POSCO’s consortium partner, GS Group, suddenly pulled out of the deal over a price disagreement with POSCO. The two had agreed to make a joint bid for a controlling stake in the world’s third-largest shipbuilder .

Hyundai Heavy is teaming up with affiliates such as Hyundai Mipo Dockyard to take over its domestic rival, claiming that the acquisition would generate a synergy effect for the company and its partners. Daewoo Shipbuilding’s labour union, however, has voiced opposition against Hyundai’s bid as the rival would likely lay off workers at Daewoo.

Chemical and energy-focused Hanwha Group, in the meantime, may face difficulty in financing the acquisition, as the deal, set to be this year’s biggest merger and acquisition, comes amid worsening global financial turmoil. South Korea’s benchmark index, the KOSPI, has slid 36% this year in line with the global financial rout, which makes it difficult for Hanwha to raise funds.

Some newspapers report that the group may pay 7 trillion won ($5.11 billion) for the stake. Hanwha is seeking to sell part of its stake in Korea Life Insurance, the country’s second-largest life insurer, to fund the deal. The group is also in talks with some local banks to raise money for the acquisition of Daewoo Shipbuilding.

There is the possibility that KDB may cancel the sale should bidders submit prices below expectations amid a flagging local stock market. KDB wants at least 5 trillion won for the sale, but market capitalization of Daewoo Shipbuilding reached slightly over 3 trillion won as of Friday, a sharp drop of nearly 45% from its peak in October.

So far this year, Daewoo has won around $11 billion worth of orders to build ships and offshore facilities, which accounts for about 62% of this year’s target of $17.5 billion. Its order backlog has reached about $42 billion.