With the new government set to be inaugurated next week, anticipation is growing in the nation’s financial markets for the mergers and acquisition market to pick up soon.
The list of expected sales includes not only some of the top players in their industries but also several so-called mega deals, indicating those with market capitalization of 1 trillion won ($925 million) or more.
Domestic pundits, too, predicted that the firms that managed to survive the 2008 global financial crisis would now seek to boost liquidity and brace themselves for other critical situations in the future.
But it remains uncertain whether these deals will indeed reach a settlement as the economy is yet caught in a lackluster mood, observers noted.
The most conspicuous firm currently available is Daewoo Shipbuilding and Marine Engineering, the world’s No. 2 shipbuilder and one of the top players in offshore construction.
|DSME shipyard in Geoje|
The company has been without an owner for years, especially after its attempted merger with Hanwha Group ended in failure back in 2008, but is expected to pick up momentum in the market once the incoming Park Geun-hye government takes office.
The acquisition of DSME is an appealing option to rival heavy industry players as it possesses leading technology on oil drilling and storage systems, as well as on battleships.
Another potential subject for acquisition is Woori Financial Group, which is expected to reenter the market for privatization under the incoming financial leadership.
|Woori Financial Group headquarters in Seoul (Bloomberg)|
|A KAI plant in Sacheon|
Woori Financial is the nation’s largest financial services company as well as the top-priced deal among the M&A potentials, with some 9.9 trillion won in total assets.
The state-run Korea Aerospace Industries came third on the list with assets totaling 2.4 trillion won.
STX PanOcean and the Korea Line Corporation, which are ranked third and seventh in the nation’s shipping and logistics industry, are competing with each other in the auction market.
Dongyang Group, a middle-ranked conglomerate, is set to sell its construction, concrete and home appliance businesses to secure an additional 2 trillion won within the first half of this year, according to officials.
The invigoration of the M&A market, however, is faced with two obstacles: the huge asset value of the corresponding firms and the protracted slump of the world economy, both of which act as intimidating factors to potential purchasers.
“After Hanwha’s merger project failed in 2008, the entire shipbuilding industry plunged and we may no longer expect to receive a fair price in the market,” said an official from DSME.
If the company were to compromise on the prices, on the other hand, it may be suspected of offering financial favors to a specific buyer, he explained.
“Also, there are only very few within the industry that could take a big slice of the pie.”
Likewise, STX Group chairman Kang Duk-soo told reporters earlier this year that “(the sales of STX PanOcean) will still take more time.”
Also, in the aftermath of the global financial crisis, most companies have maintained an emergency management system over the years, making it difficult for the executive level to make bold purchasing decisions.
New legal restrictions, such as the equity investment ceiling and the separation of industrial and financial capital, are also factors said to deter conglomerates from large-scale acquisitions.
For these reasons, The Economist recently predicted that many companies will focus on shedding non-major businesses to reduce costs, instead of insisting on selling entire units in a mass deal.
According to the Fair Trade Commission, the number of mergers and acquisitions in Korea amounted to 543 corporate combinations last year, up 26 percent from 112 cases in 2011. The FTC attributed the increase to cash-rich companies’ move to improve their business efficiency through corporate takeover.
However, the value of the reported M&As fell sharply. The M&As last year were valued at about 19.7 trillion won in total, down 35 percent or 10.6 trillion won from a year earlier, the FTC said.
By Bae Hyun-jung (email@example.com