STX May Enter Daewoo Engineering Bidding.
South Korean conglomerate STX Group may join in the multibillion-dollar bidding for control of Daewoo Engineering & Construction, even as a group of U.S. firms expressed renewed interest in buying the big South Korean construction company.
STX said Wednesday it is interested in joining a private equity fund led by Korea Development Bank that is set to acquire a controlling stake in Daewoo Engineering for $2.5 billion. KDB is the main creditor of cash-strapped Kumho Asiana Group, parent of Daewoo Engineering.
TR America consortium, a U.S. fund mostly consisting of construction companies, revised its offer to buy a controlling stake in Daewoo Engineering, KDB said Tuesday. TR America had previously been a final bidder for the stake before investor chose to sell it to KDB as part of a Kumho restructuring. Details of TR America's interest were unclear Wednesday.
Shares of Daewoo Engineering were up on hopes its sale process may speed up, while STX Group affiliates were lower on concerns of a financing burden from the possible acquisition. Daewoo Engineering ended 4% higher at 11,750 South Korean won (about $10.24), while STX Corp. shares were down 5.1% to 15,700 won. The broader market closed up 1.7%.
The sale process has been mired in uncertainty as creditors work out a Kumho restructuring. The KDB-controlled fund agreed in December to purchase a more-than-50% stake in Daewoo Engineering as part of the restructuring. But the 18,000-won price is a hefty 53% premium to the current price.
An STX official said the company has had talks with KDB but it hasn't decided whether to join the KDB fund yet. "We will be able to make a decision after creditors reach an agreement with financial investors [to sell their stake in Daewoo Engineering]," the official said.
The STX official said the firm would be a strategic investor, meaning it would participate in the management of the company. However, whether KDB will attract a single or multiple strategic investors in the fund hasn't been determined yet, a KDB official said.
Analysts said STX Group, which has been keen to expand its business portfolio via acquisitions, is viewed as a more likely candidate so far compared to other bidders such as TR America consortium.
However, some questioned whether STX Group has sufficient funds to acquire Daewoo Engineering, which is one of the largest local construction firms.
"STX Group has been growing rapidly in the last decade via M&A...and the shipbuilding industry isn't that strong at the moment, so it is uncertain whether it can acquire the company without large borrowings," said Byun Seong-jin, analyst at Mirae Asset Securities. "For KDB, it may be better to wait until financial markets to recover and Daewoo Engineering's business normalizes before finding a potential buyer."
The KDB official there won't be any meaningful discussions until the financial institutions that invested in Daewoo Engineering agree to sell their stake to the KDB-led fund.