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Hyundai Steel to Buy Hysco Unit for Carmaker Sheet Supply

Hyundai Steel Co. (004020)’s plan to take over the core business of its affiliate Hyundai Hysco Co. will create a new type of integrated steelmaker with South Korea’s largest carmaker as a captive customer.

Hyundai Motor Group Chairman Chung Mong Koo, 75, is the biggest individual stakeholder of both Hyundai Steel and Hysco, according to data compiled by Bloomberg, and controls the group’s 57 affiliates through a web of cross-shareholdings.

The all share deal for Hysco values the operation at 2.8 trillion won ($2.6 billion).

“Hyundai Steel will become a complete steelmaker, able to rival the country’s biggest steelmaker Posco,” Lee Won Jae, an analyst at SK Securities Co. in Seoul, said by phone today after the filing. “This is definitely a positive factor considering that there are no steelmakers around the world that has a parent company like Hyundai Motor Group, which has ongoing demand for steel products.”

Hyundai Steel and global rivals including Posco (005490) have been struggling with falling profits as Europe’s debt crisis and China’s slowdown cut demand and prices. The deal gives Hyundai Steel a cold-rolled steel unit that provided 91 percent of Hyundai Hysco’s operating income last year. Hysco will retain a steel pipe and steel byproducts business. Hyundai Steel gained 4.5 percent at the close in Seoul, while Hysco rose 0.7 percent.

“For Hyundai Steel shareholders, the deal looks to be not that bad as they are taking over Hysco’s core business,” Bang Min Jin, a steel analyst at HI Investment & Securities Co. in Seoul, said by phone. “Hysco will be left with the pipeline business, which does not have a bright outlook, while its overseas processing business is somewhat promising.”

Family Ties

Chung’s son Chung Eui Sun is co-vice chairman at Hyundai Steel, while Hysco Chief Executive Officer Shin Sung Jae is Chung’s third son-in-law.

Hyundai Steel and Hysco are key links in Hyundai Motor’s supply chain, which spans raw-material steel to end-product cars. Hyundai Steel sells hot-rolled coil steel to Hysco, which is then used as a raw material to make car sheets that are sold to Hyundai Motor, the world’s fifth-largest carmaker.

Hyundai Steel, which plans to complete the transaction this year, offered 0.3889584 of its shares for Hysco’s business unit, according to filings by the companies today.

Hysco shares closed yesterday at 41,800 won, giving it a market value of $3.1 billion. Hysco will hold a shareholder meeting on Nov. 29 on the board’s merger decision, the company said.

“The merger is also a burden for steel companies including Posco and Dongkuk Steel Mill Co. (001230), since this will create a new strong competitor at a time when the industry is seeing limited local demand,” Lee at SK Securities said.

To contact the reporters on this story: Sungwoo Park in Seoul at spark47@bloomberg.net; Sharon Cho in Seoul at ccho28@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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