|An excavator by Doosan Infracore / Courtesy of Doosan Infracore|
By Nam Hyun-woo
Doosan Group is taking bids from investors to sell off its stake in heavy equipment unit Doosan Infracore, while analysts and industry officials say a pending suit over the firm's Chinese subsidiary will determine how much the group can get out of the sale.
Given the company's status as the world's No.9 construction equipment maker, the market expects the stake up for sale will fetch between 900 billion won ($808 million) and 1 trillion won, money much needed to save Doosan Heavy Industry & Construction. But the price could go down depending on the results of the suit involving Doosan Infracore China Co. (DICC).
According to sources, several consortiums and private equity funds (PEFs) completed their due diligence on Doosan Infracore earlier this week. Known investors on the shortlist include a consortium led by Hyundai Heavy Industries Holdings, MBK Partners, Glenwood Private Equity and a consortium led by GS E&C.
The market price of the 36 percent stake is hovering over 470 billion won, but there will be additional valuation because it is for a controlling stake in Doosan Infracore. Because Doosan Heavy is not selling Doosan Infracore's subsidiary Doosan Bobcat, Doosan Infracore will be split into a business division, which will be sold, and an investment division holding a 51 percent stake in Bobcat.
Even with Doosan Bobcat split off, investors are expected to value Doosan Infracore highly, as the company has posted handsome numbers in its recent earnings. In the third quarter of this year, Doosan Infracore's heavy industry sales ― meaning its sales outside of Bobcat and engine business ― grew 23.2 percent year-on-year to 740.8 billion won and operating profit jumped 223 percent to 66.4 billion won during the same period.
Casting uncertainty, however, is the pending suit involving DICC, which handles the company's sales in China.
According to Doosan Infracore, IMM PE, Mirae Asset and Hana Financial Investment PE jointly invested 380 billion won and acquired a 20 percent stake in DICC in 2011. The deal helped the investors acquire the right to force Doosan Infracore to join them and sell up to 80 percent of the DICC stake unless DICC launched its initial public offering (IPO) on the bourse in three years.
However, the IPO failed to materialize, and the subsequent DICC sale was also botched. The investors claimed the sale was disrupted because Doosan Infracore did not share relevant data, and filed two suits against Doosan Infracore demanding reimbursement for their stakes.
The total value of the suits is 709.3 billion won, and they are each pending at the Supreme Court and a lower court. Results are expected to be available within next year.
If Doosan Infracore loses the suit, the buyer of the company has to shoulder the cost. Given the interests and legal fees, the buyer would have to pay up to 1 trillion won additionally.
Due to this, Doosan Infracore's sale has been considered a tough choice in Doosan Group's efforts to salvage cash-strapped Doosan Heavy. Doosan Group is said not to want to pass on the risks to bidders, meaning the remaining Doosan Infracore investment division will handle the costs of the suit, according to local reports.
Doosan Group refused to comment on this. However, such concerns may cause an uproar from minor investors of Doosan Heavy and trigger additional suits accusing Doosan Heavy executives or board members of malpractice.
"It is known that bidders and Doosan Group are in a tug-of-war over the scope of responsibility on DICC suits," an industry official said. "Because Doosan Group and Doosan Heavy creditors are seeking to wrap up Doosan Heavy's bailout program this year, setting up the scope of responsibility will be the key in the bidding process."