Hyundai Group’s bid to buy control of South Korea’s largest builder collapsed because of concerns about funding plans for the acquisition.
Shareholders selling 35 percent of Hyundai Engineering & Construction Co. voted to end talks with Hyundai Group, previously named as preferred bidder, they said in an e-mailed statement today in Seoul. Hyundai Group offered about 5.5 trillion won ($4.8 billion) for the stake, more than double the market value, two people familiar with the matter said Nov. 16.
“This deal got off on the wrong foot from the start,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “Hyundai Group just wasn’t able to persuade people that it was paying an amount it could afford.”
The shareholders may now begin talks with billionaire Chung Mong Koo, whose Hyundai Motor Group lost out in the initial auction to Hyundai Group, headed by his brother’s widow. The battle, which extended a decade-long family feud, may allow Chung to take over what was his father’s flagship company and also let him snatch control of Hyundai Group’s biggest unit.
Hyundai Motor Talks?
The builder’s shareholders will inform Hyundai Group of their decision today, they said. They will decide whether to start talks with Hyundai Motor Group at a later date, said Korea Exchange Bank, one of the shareholders.
“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 Group Chairwoman Hyun Jeong Eun’s grip on the group’s biggest unit Hyundai Merchant Marine Co., which also owns controlling stakes in seven of Hyundai Group’s 11 other units, could be endangered if Chung gains control of Hyundai Engineering.
The builder owns 8.3 percent of the shipping line and combined with the 25.5 percent stake held by shipbuilder Hyundai Heavy Industries Co., controlled by Chung Mong Koo’s brother Chung Mong Joon, and the 5 percent owned by KCC Corp., founded by an uncle of Chung Mong Koo who tried to block Hyun’s succession, the total would almost match the 40 percent owned by Hyun and Hyundai Group. Another 5 percent is held by the Seoul-based shipping line and its employees.
The Hyundai Engineering shareholders 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 they begin talks with the automaker, Korea Exchange Bank said.
Hyundai Merchant, South Korea’s second-largest shipping line, dropped 4.6 percent to 39,750 won at the close of trading in Seoul. Hyundai Engineering climbed 0.4 percent to 70,100 won. Hyundai Motor Co., South Korea’s biggest automaker, gained 1.4 percent to 180,500 won. The announcement on the end of the talks came after the market close.
Hyundai Group plans to raise about 2 trillion won selling shares in a French unit of Hyundai Merchant, it said today separately. The company has had interest from seven potential investors, it said. Hyundai Merchant also said today it would sell 10.2 million new shares in itself for 32,000 won apiece, 19 percent less than today’s closing price. There’s no change to these sale plans, Hyundai Group said.
The Hyundai Engineering shareholders 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.
Hyundai Motor Group, parent of Hyundai Motor Co. and Kia Motor Corp., offered about 400 billion won less than Hyundai Group for the Hyundai Engineering stake, the people familiar said on Nov. 16.
The automaking group split off from the main Hyundai Group in 2000, after Chung Mong Koo was snubbed as heir by his father in favor of Hyun’s husband. A year later, creditors seized control of Hyundai Engineering as the builder struggled with debts. These creditors are now selling their stakes.