Goldman Sachs Says Korean Mergers May Expand 27% as Companies Shop Abroad

Goldman Sachs Group Inc. (GS), ranked first globally in advising on mergers, said takeovers involving South Korean companies may climb by as much as 27 percent on government stake sales and local firms buying overseas assets.

Annual deal volumes may expand to $60 billion to $70 billion over the next three to four years, John Kim, Goldman Sachs’s head of South Korea investment banking and co-country head, said in an interview in Seoul on May 30. The Asian nation had about $55 billion in such transactions last year, according to data compiled by Bloomberg.

Local companies ambitious to expand beyond the domestic market and those seeking access to resources are stepping up bids for overseas assets, Kim said. The divesting of stakes in firms that were bailed out following the 1997-98 Asian financial crisis has also helped fuel the most takeovers in the first five months since the same period in 2008, the data show.

“More Korean companies are teaming up with private equity funds and other partners to buy overseas assets, a trend not many would have imagined five years ago,” Kim, 44, said. “Korean buyers have become much more sophisticated about going abroad.”

Goldman Sachs vaulted to No. 2 among banks involved in mergers linked to Korean companies, from No. 10 last year, after advising buyers of a combined 4.96 trillion won ($4.6 billion) of stakes in Hyundai Engineering & Construction Co. in the nation’s largest deal this year. Local rival Korea Development Bank is ranked first and Seoul-based Woori Investment & Securities Co. is No. 3, data show.

The New York-based firm also advised a group including Posco (005490), the world’s third-biggest steelmaker, on buying a stake in a Brazilian rare-metal producer.

Mid-Sized Clients

The Wall Street firm, which has invested more than $1.5 billion in the nation since 1999, established a representative office in Seoul in 1992 and made it into a branch in 1998, according to the company. It got a local banking branch license in June 2006, and now employs about 180 people in Seoul at the bank, securities unit and an asset management service.

Kim, who joined the New York-based firm in 2000 after stints at Merrill Lynch & Co., Salomon Smith Barney and Credit Suisse First Boston, said Goldman Sachs would consider extending services to mid-sized Korean companies if they become more active in overseas acquisitions.

Sales of companies such as Woori Finance Holdings Co. and Hynix Semiconductor Inc. (000660) are likely to dominate domestic takeovers, according to Kim. The Financial Services Commission in May revived a plan to divest the government’s 57 percent holding, worth 6.4 trillion won based on yesterday’s closing price, in Woori.

‘Sheer Size’

Shareholders of Hynix, the chipmaker that was bailed out by creditors after the Asian crisis, held meetings in May to resume attempts to sell their stakes.

“The sheer size of large deals, like the sale of Hynix Semiconductor, will eclipse smaller transactions in terms of prominence, but the number of overseas acquisitions by South Korean companies will continue to grow,” Kim said.

South Korean companies purchased $13.9 billion worth of overseas assets last year, 35 percent more than a year earlier, led by state-run Korea National Oil Corp.’s $2.8 billion acquisition of U.K.-based Dana Petroleum Plc, according to data compiled by Bloomberg.

This year, local companies have announced $4.57 billion of outbound transactions, the data show.

Overseas Acquisitions

The biggest is the bid by a group led by Seoul-based sportswear company Fila Korea Ltd. (081660) to buy U.S.-based Acushnet Co., the maker of Titleist golf balls and clubs, from Fortune Brands Inc. (FO) for $1.23 billion in cash. The National Pension Service, Mirae Private Equity and KDB Financial Group Inc. were among buyers.

More Korean companies may choose to bid for targets abroad as part of a consortium to reduce the financial burden or gain access to commodities or energy supplies without owning a majority stake, Kim said.

“Korean firms making outbound acquisitions will be a notable trend,” Kim said. “Armed with past experiences and the financial firepower, they have become more confident and capable of doing such deals.”

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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