Hyundai Motor's Chung Nears Builder Takeover After Trumping Sister-in-Law

Hyundai Motor Group may sign a preliminary deal to buy a controlling stake in South Korea’s largest builder next week after Chairman Chung Mong Koo’s sister-in-law failed to win a court order blocking talks.

Shareholders selling 35 percent of Hyundai Engineering & Construction Co. will likely sign a memorandum of understanding with the automaker by Jan. 14, Kim Sun Gyu, a spokesman for Korea Exchange Bank, one of the investors, said yesterday in Seoul. A final deal may be reached by mid-February, and the sale may be completed by early April, he said.

Hyundai Engineering surged the most in a year after the Seoul Central District Court rejected an attempt by rival bidder Hyundai Group to derail discussions. Hyundai Group’s Chairwoman Hyun Jeong Eun is trying to stop her brother-in-law from gaining control of the builder and its stake in her largest company.

“The court’s decision has eliminated all uncertainties,” said Park Young Do, an analyst at LIG Investment & Securities Co. in Seoul. “Hyundai Group would have had little to invest in Hyundai Engineering after buying the stake.”

Hyun and Chung made rival offers for what was his father’s flagship business, extending a decade-long feud in one of South Korea’s richest families. Chung’s automaker bid about 5.1 trillion won ($4.6 billion), about 410 billion won less than Hyundai Group, Judge Choi Sung Joon said at a Dec. 24 hearing.

Funding Concerns

The Seoul-based builder gained 6.7 percent close at 80,000 won, the highest price since June 2008. Hyundai Merchant Marine Co., Hyundai Group’s biggest unit, fell 3.4 percent to 38,650 won.

Hyundai Motor Group’s listed unit Hyundai Motor Co. climbed 6.2 percent to a record 189,000 won. Shares also rose after the South Korea’s biggest automaker sold 33 percent more vehicles in the U.S. last month.

The Hyundai Engineering shareholders ended talks with Hyundai Group last month because of concerns about how the group would pay for the stake. The Seoul court found no reason to reverse this decision, it said yesterday.

Hyundai Group plans to appeal the ruling, it said in an e- mailed statement. That won’t stop the shareholders from beginning discussions with Hyundai Motor Group, Kim said. The shareholders will vote on making the automaker the preferred bidder by Jan. 7, he said.

“Hyundai Motor Group hopes to begin talks as soon as possible,” it said in an e-mailed statement. “We will try our best to grow Hyundai Engineering into a global leader in the construction industry.”

Record Orders

Hyundai Engineering aims to win a record $14 billion of orders this year, 27 percent more than the $11 billion it received in 2010, it said today in an e-mailed statement. Hyundai Motor Group, which already has a construction arm, plans to invest 10 trillion won in the builder to help boost sales fivefold in a decade, it said in October.

“Chung will be able to carry on his father’s legacy,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “Buying the builder will strengthen Hyundai Motor Group’s plan to expand into new areas like green businesses.”

Byun today raised his target price on Hyundai Engineering to 101,000 won from 81,000 won, while reiterating a “buy” rating. The builder also separately announced a $340 million contract to construct a 360-megawatt power plant in Bangladesh.

Family Feud

Hyundai Motor Group split off from the main Hyundai Group in 2000, after Chung was snubbed as heir by his father in favor of his younger brother and Hyun’s husband, Chung Mong Hun. Hyun took control of Hyundai Group after her husband committed suicide in 2003.

Creditors including Korea Exchange Bank seized control of Hyundai Engineering in 2001 as the builder struggled with debts. These creditors are now selling their combined 35 percent stake.

Hyundai Motor sold a record 538,228 vehicles last year, 24 percent more than in 2009. Its affiliate, Kia Motors Corp., reported a sale of 45 percent increase in December and a 19 percent increase to an all-time high of 356,268 for the year.

Kia Motors gained 3.3 percent to close at 56,900 won, the highest price since April 1998.

Hyundai Motor Group owns Hyundai Amco Co., which built all of Hyundai Motor Co. and Kia Motors’ domestic and overseas plants. Hyundai Amco expected to win 3.1 trillion won of orders last year and to post sales of 1.6 trillion won. Sales are booked as work is completed on projects.

Owners of the 35 percent Hyundai Engineering stake for sale broke off talks with Hyundai Group after asking 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.

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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