Hyundai Group's Hyun May See Brother-in-Law Challenge as Builder Bid Fails

Hyundai Group Chairwoman Hyun Jeong Eun failed in an attempt to buy a stake in South Korea’s largest builder, opening up a possible challenge for control of her biggest company from her billionaire brother-in-law.

Shareholders selling 35 percent of Hyundai Engineering & Construction Co. said yesterday they would end talks with Hyundai Group because of concerns about its funding plans. They may now open negotiations with Hyundai Motor Group, which lost out in the initial auction last month. The automaker is headed by Hyun’s late husband’s brother Chung Mong Koo.

The collapse of Hyun’s bid endangers her grip on Seoul- based Hyundai Merchant Marine Co., her group’s biggest unit and the holder of controlling stakes in seven affiliates, as Hyundai Engineering owns 8.3 percent of the shipping line. Getting hold of that stake and combining it with shares already controlled by relatives could enable Chung to build a block in Hyundai Merchant almost as big as Hyun’s.

“Hyundai Group put everything and more into buying Hyundai Engineering because the fate of the group is on the line,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “This deal from the beginning was a family fight.”

Hyundai Engineering climbed as much as 6 percent in Seoul trading on speculation Hyundai Motor would be able to invest more in the company than Hyundai Group. It rose 2.1 percent to close at 71,600 won, the highest close in more than a month. Hyundai Merchant, South Korea’s second-largest shipping line, gained 0.9 percent to 40,100 won.

Family Feud

Hyundai Group and Hyundai Motor Group’s rival bids for the Hyundai Engineering stake extended a decade-long feud in one of South Korea’s most powerful families. Hyundai Group offered about 5.5 trillion won ($4.8 billion) for the shares, beating the automaker’s bid by about 400 billion won, two people familiar with the matter said last month. The offer was more than double the market value.

The Hyundai Engineering shareholders will decide whether to start talks with Hyundai Motor Group at a later date, Korea Exchange Bank, one of the investors, said yesterday. They also offered to act as intermediaries between Hyundai Group and Hyundai Motor Group over the fate of the construction company’s stake in Hyundai Merchant if talks with the automaker begin.

“The decision to end talks goes against the sale terms,” Hyundai Group said in an e-mailed statement. “We will seek a fair decision through legal channels.”

Hyundai Motor Group hopes the shareholders will proceed in a manner that follows the bidding regulations, said Lee Hwa Won, a spokesman. He declined to comment further. Hyundai Motor Co. dropped 1.7 percent to 177,500 won.

Hyundai Merchant Stakes

Chung could marry Hyundai Engineering’s stake in Hyundai Merchant with the 25.5 percent held by shipbuilder Hyundai Heavy Industries Co., controlled by his younger brother, and the 5 percent owned by KCC Corp., founded by an uncle who tried to block Hyun’s succession. The three stakes together would almost match the 40 percent owned by Hyun and Hyundai Group. Another 5 percent is held by the shipping line and its employees.

“The immediate issue for Hyundai Group could be defending its control of Hyundai Merchant,” said Ahn Soo Woong, head of research at LIG Investment & Securities Co. in Seoul. “Losing out on Hyundai Engineering will also stunt Hyundai Group’s effort to grow its businesses.”

Husband’s Suicide

In April, Hyun set a target of increasing Hyundai Group’s sales to 70 trillion won in 2020 from 10.5 trillion won last year, by strengthening its three main businesses -- logistics, finance and infrastructure. Hyun assumed control of Hyundai Group after her husband committed suicide in 2003.

Hyundai Motor split off from the main Hyundai Group in 2000, after Chung was snubbed as heir by his father in favor Hyun’s husband. A year later, creditors seized control of Hyundai Engineering, the Hyundai Group’s flagship, as the Seoul- based builder struggled with debts. These creditors are now selling their stakes.

“It’s not going to be easy for the shareholders to find a compromise over the Hyundai Merchant stake,” said Mirae Asset’s Byun. “Hyundai Group and Hyundai Motor Group wouldn’t have offered such high prices for the Hyundai Engineering shares if they didn’t have far bigger motives.”

Hyundai Group also said yesterday that it plans to raise about 2 trillion won selling shares in a French unit of Hyundai Merchant. Seven potential investors have expressed interest, it said. Hyundai Merchant also said yesterday it would sell 10.2 million new shares in itself for 32,000 won apiece, 19 percent less than yesterday’s closing price. Yesterday’s announcement about the Hyundai Engineering talks won’t affect these sales, Hyundai Group said.

French Loan

The Hyundai Engineering shareholders broke off talks after asking Hyundai Group three times for more details about a 1.2 trillion won loan from Paris-based Natixis SA. Hyundai Group provided documents without handing over a copy of the agreement, it said on Dec. 17. The documents were “insufficient,” Korea Exchange Bank said the same day.

Hyundai Motor Group said on Oct. 19 that it planned to invest 10 trillion won in Hyundai Engineering if it gained control the builder to help boost sales fivefold in a decade. The automaker intended to grow the construction company’s existing businesses and to push it into new markets such as wind power and resources development.

“Hyundai Motor Group can provide more synergies for Hyundai Engineering than Hyundai Group, not to mention more help in raising funds and a sounder financial base,” Lee Chang Keun, a Hana Daetoo Securities Co. analyst, said in a report today.

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Sookyung Seo in Seoul at sseo10@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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