India's Videocon wins race for Daewoo Electronics

IndiaÆs Videocon - bidding with US private equity fund Ripplewood - is to buy Korea's Daewoo Electronics, for around $650-700 million.
IndiaÆs Videocon Industries has made the winning bid for Daewoo Electronics, at a price estimated at $650-700 million. The acquisition of the South Korean company is being made with US private equity fund Ripplewood Holdings and could be India's largest private sector cross-border acquisition, eclipsing a recent Tata transaction.

Videocon is a key player in IndiaÆs consumer electronics industry. As per Prime Broking research (dated July 27, 2006) Videocon is expected to announce a turnover of around Rs114 billion ($2.5 billion) for the current 12 month fiscal period, including sales derived from two 2005 acquisitions. DaewooÆs sales revenue at W2.16trillion ($2.26billion) will add significantly to Videocon. At the indicative price of $700 million the price represents a sales multiple of 0.31 on DaewooÆs sales.

RHJ International, part of Ripplewood Holdings, has partnered Videocon for the bid. Ripplewood manages $10 billion of capital across five funds, primarily invested in the US and Japan. One of its' best known investments was Shinsei Bank in Japan which it took over in 1999 and later successfully led to an IPO, and an enormous return on investment.

Daewoo Electronics operates six plants in South Korea and 18 outside the country. ItsÆ total assets at the end of 2005 were W1.65 trillion. Its electronics business made a loss of W94 billion for the last fiscal year which was attributed to the won's strengthening - which adversely impacted exports. The company made a profit of W30.4 billion in 2004.

Woori Bank, principal creditor to Daewoo Electronics, which announced Videocon winner on September 8 did not disclose the price offered saying it was subject to ôconfirmatory due diligenceö. Market sources suggested it was in the said range. The news was a surprise for some who had assumed local firm, MBK Partners - run by ex-Carlyel Asia boss, Michael Kim - would be the most aggressive bidder. MBK was declared reserve bidder.

Daewoo was among the South Korean chaebols affected by the economic downturn of the last decade and was declared bankrupt in 1999. Of its various divisions and subsidiaries, Daewoo Electronics seemed like one of the easier revival packages. Creditors restructured loans and swapped debt into equity ending up with 97.5% of the company in January, 2000. When the auction was announced, a total of 19 initial expressions of interest were received. However, only five firms chose to make final bids.

Prime BrokingÆs research commented that the Daewoo acquisition ôwill enable Videocon to strengthen its position in markets where it has a modest presence today like the US, South Korea, Japan and Europe. It will also be able to leverage DaewooÆs R&D centres for TVs and home appliances as well as get its hands on a world-class appliances manufacturing facility.ö

Videocon is aggressively pursuing acquisitions to kickstart entry into new markets and grow rapidly. It completed two takeovers in 2005 and is successfully integrating both. In June 2005 Videocon acquired the colour picture tube operations of Thomson, France for $291 million comprising facilities in China, Mexico and Poland. The acquisition was viewed favourably by analysts. Prime commented ôthe synergies with VideoconÆs Indian operations will help Videocon control costs in the low margin colour picture tube businessö. In 2005 Videocon also acquired the India operations of Electrolux, Sweden for $76 million including the Electrolux, Kelvinator and Allwyn brands.

VideoconÆs confidence in being able to successfully run a large Korean company may also have been bolstered by the fact that it is not the first Indian company to turn acquirer in South Korea. In November 2003, Tata Motors acquired DaewooÆs commercial vehicle business for $118 million, which now operates as a 100% subsidiary of Tata Motors. For the most recent fiscal year Tata Daewoo grew turnover and earned a profit.

ABN AMRO, Woori Investment and Securities and Samil PriceWaterhouse Coopers advised on the sell side. On the buy side UBS and Citigroup advised the Videocon/Ripplewood consortium. ABN confirmed that Videocon was named preferred bidder but did not comment further at this juncture, as the transaction is subject to final confirmation. UBS and Citigroup declined any comment.

Investors welcomed the news as Videocon shares on the Bombay Stock Exchange on Friday went up 2% to close at Rs414.
¬ Haymarket Media Limited. All rights reserved.
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