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▶Market Insight Mar 10 @ 2:43pm
Daewoo E&C came out for sale again after 3 years. As domestic private equity funds (PEFs) are known to be active in the acquisition, it is noteworthy whether they can find a new owner this time.
According to the investment banking (IB) industry on the 10th, KDB Investment, the largest shareholder of Daewoo E&C, is discussing a plan to sell its entire stake (50.75%), including management rights, to a domestic PEF manager. It is known that this PEF is promoting the formation of a consortium with strategic investors (SI) such as construction companies. The transaction amount is being discussed at the level of 1.8 trillion won.
This is the third time in the sale of Daewoo E&C. After the dissolution of Daewoo Group, the company went through a workout and transferred to Kumho Asiana in 2006. Kumho, who could not afford the acquisition fund, returned to the original point after putting it for sale after three years. Korea Development Bank, which adopted Daewoo E&C in 2011, selected Lakeside Construction as the preferred negotiator through a public sale in 2017. This, too, was eliminated when Daewoo E&C’s overseas business sites were unstable.
Daewoo E&C has been showing rapid earnings improvement since last year. Last year’s operating profit was 558.3 billion won, a 53% increase from the previous year.
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The reason KDB Investments is pushing for the sale of Daewoo E&C is because the company decided that now is the right time to sell and receive the right price as the company’s earnings are improving rapidly. Lee Dong-geul, chairman of Korea Development Bank, attended the National Assembly audit in 2019 and 2020 and repeatedly said, “I will try to resell it after doing work to maximize the corporate value” to questions related to the sale of Daewoo E&C. There is an evaluation that the right time to sell has arrived this year.
Daewoo E&C is showing a clear performance improvement trend, exceeding the order performance despite the aftermath of the novel coronavirus infection (Corona 19) last year. Last year’s sales were 8,136.7 billion won and operating profit was 558.3 billion won. In particular, in the fourth quarter of last year, it recorded an earnings surprise (surprising results) exceeding market expectations with sales of KRW 2,291.4 billion and operating profit of KRW 253.3 billion. Operating profit for the fourth quarter exceeded Samsung C&T (135 billion won) and Hyundai E&C (89.9 billion won), which are the first and second in the industry.
The order performance is also solid. Last year, it won high-profit project (PJ) contracts in overseas base countries such as Nigeria, Iraq, and Mozambique. It won 13,912.6 billion won, more than 1 trillion won more than the 12.77 trillion won target at the beginning of last year. The stock price also jumped. The stock price, which plummeted to the early 2000 won level last year, rose to the 6000 won level in February this year. Recently, it has been fluctuating in the mid-5,000 won range.
Daewoo E&C, which was regarded as the first generation of domestic construction industry, suffered twists and turns after the group was disbanded in 1999. After entering the workout in 2002, it was revived after a year after intensive restructuring. After that, in 2006, Kumho Asiana Group took over as its new owner. It seemed to be recovering its reputation in the past by keeping the No. 1 in construction capability evaluation for three consecutive years since 2006.
However, as Kumho put it for sale in three years, the period of hardship has come again. This is because Kumho cannot afford the acquisition capital of 6.4 trillion won. In 2011, Daewoo E&C eventually transferred to the state-owned bank, Saneun. KDB selected Lakeside Construction as the preferred negotiator through a public sale in 2017. However, as Daewoo E&C’s overseas operations were belatedly revealed, Hoban E&C suddenly withdrew from the acquisition. At that time, Sangeun suffered from the theory of responsibility for the failure to sell it, saying,’I hurried to sell it. Afterwards, it transferred all of its shares to KDB Investment, a restructuring subsidiary in 2019.
KDB invested a total of 3.2 trillion won in the acquisition of Daewoo E&C and the capital increase. At the time of acquisition in 2011, the amount per share was 18,000 won. The transaction price currently under discussion with PEF, a leading takeover candidate, is around 8,500 won per share. The controversy over the’bargain sale’ is expected. On the contrary, the acquirer is known to insist that the current share price is below 6,000 won and that Daewoo E&C’s competitiveness is less than in its heyday, claiming that 8,500 won per share is high.
Reporter Kim Chae-yeon [email protected]
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