Hyundai’s Hyun Beats Brother-in-Law to Bid on Builder

Hyun Jeong Eun, Hyundai Group's chairwoman.
Hyun Jeong Eun, Hyundai Group's chairwoman. Source: Yonhap News via Bloomberg

Hyun Jeong Eun’s Hyundai Group was named preferred bidder for South Korea’s largest construction company, beating out a rival offer from her billionaire brother-in-law’s automaking group.

The winner offered about 5.5 trillion won ($4.9 billion) for the Hyundai Engineering & Construction Co. stake, according to two people familiar with the situation. That’s more than double the market price. Hyundai Group declined to say how much it offered in an e-mailed response to Bloomberg questions. Korea Exchange Bank named the group as the preferred bidder today.

Hyundai Group units and Hyundai Engineering fell by about the daily limit in Seoul trading on concern that Chairwoman Hyun was overpaying for the 35 percent stake. She faced Chung Mong Koo’s Hyundai Motor Group in the bidding battle that extended a decade-long feud over the divided industrial empire.

“This was definitely a big surprise because everyone expected Hyundai Motor Group to win,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “A takeover by Hyundai Group won’t benefit Hyundai Engineering, it will only be good for the group because the builder will help it to diversify its businesses.”

Hyundai Motor Cash

Hyundai Group’s bid was about 400 billion won higher than Hyundai Motor Group’s, the people familiar said.

Hyun took on Chung, whose automaking group had about ten times more cash to fund an acquisition, as part of her strategy to raise sales almost sevenfold by 2020.

The bid was “a lot more than the 4 trillion won range the market was expecting,” said Kang Seung Min, an analyst at NH Investment & Securities Co. in Seoul.

The 35 percent stake is worth $2.15 billion, according to data compiled by Bloomberg.

Hyundai Merchant Marine Co., Hyundai Group’s biggest unit, affiliate Hyundai Elevator Co. and Hyundai Engineering all tumbled 15 percent at the close of trading in Seoul today. Hyundai Merchant fell to 38,400 won, Hyundai Engineering slumped to 62,200 won and Hyundai Elevator declined to 64,700 won.

“Investors are worried about a possible cash squeeze,” said Shin Min Seok, a Seoul-based analyst at Daewoo Securities Co. The news spurred concern the group “might have offered a big price tag,” Shin said.

Severed Ties

Hyundai Motor Group in 2000 severed ties with Hyundai Group because the late founder Chung Ju Yung picked his younger son as his successor over Chung Mong Koo. Hyundai Engineering was taken over by creditors, including Korea Exchange, the following year after being unable to pay debts.

Hyundai Group plans to complete the agreement to buy the builder through units Hyundai Merchant, Hyundai Elevator and Hyundai Securities Co. next year, Korea Exchange Bank Director Kim Hyo Sang told reporters in Seoul today.

The three Hyundai Group units had cash and cash equivalents totaling 1.13 trillion won at the end of June.

Shipping line Hyundai Merchant aims to raise about 400 billion won by selling 10.2 million new shares next month and 500 billion won in a commercial note sale. It is also selling a stake in a container terminal in Busan, South Korea, for about 200 billion won. Hyundai Elevator has raised 180 billion won through sale of notes and bonds.

Hyundai Motor Co., Kia Motors Corp. and Hyundai Mobis Co. had a combined 11.8 trillion won of cash and assets equivalent to cash at the end of September. Hyundai Motor Co. and Kia are South Korea’s largest carmakers, while Mobis makes auto parts.

Hyundai Motor Co. gained 2.6 percent to 181,000 won in Seoul. Kia rose 0.4 percent to 50,000 won.

Refinery Construction

Hyundai Engineering gets about 45 percent of revenue from construction of power plants and refineries and has contracts for a nuclear plant in the United Arab Emirates, natural gas works in Indonesia and oil piers in Kuwait. Projects including roads, dams and bridges make up another 45 percent of sales. The builder posted record profit for 2009.

The acquisition of Hyundai Engineering may help Hyundai Group achieve its goal of boosting sales to 70 trillion won in 2020 by strengthening its logistics, finance and infrastructure businesses.

An acquisition of Hyundai Engineering would help Hyundai Group diversify, reducing its dependence on Hyundai Merchant, the group said today in an e-mailed statement. It also said that the takeover will help rebuild the group.

Net income at Hyundai Engineering jumped 42 percent to 460.2 billion won in the nine months ended Sept. 30 from a year earlier. It received 16.2 trillion won worth of orders at the end of September. That increased its backlog to 55.8 trillion won, representing more than five years’ work.

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