Korea's Doosan closes record M&A deal

Doosan Corporation buys three business units from Ingersoll Rand for $4.9 billion in the country's largest outbound M&A transaction.
South KoreaÆs Doosan Corporation will buy the bobcat, utility equipment and attachments business units of Ingersoll Rand for $4.9 billion. Investors responded favourably to the deal, pushing the company's shares up 15% yesterday.

Doosan has acquired businesses engaged in the manufacture and sale of compact equipment, general-purpose light construction equipment and attachments. In calendar 2006, the combined businesses produced revenues of $2.6 billion, suggesting the deal has been transacted at a sales multiple of 1.9 times. Profit numbers for the divisions were not disclosed.

As part of the sale, Doosan will acquire Ingersoll RandÆs manufacturing facilities in the US states of North Dakota, Georgia, Minnesota and Virginia, as well as facilities in China, the Czech Republic, France, Ireland and Wales. Doosan will also take on 5,700 Ingersoll Rand employees worldwide.

Ingersoll Rand announced on May 15 it would explore strategic alternatives for the businesses, as part of its plan to move away from cyclical, heavy machinery businesses and transform to a diversified industrial company.

The acquisition will be effected through DoosanÆs North American subsidiary, Doosan Infracore. Doosan Infracore emerged the winner in a limited auction which saw interest from both strategic players and financial sponsors. Credit Suisse and Goldman Sachs ran the process for Ingersoll Rand.

Doosan told media it would raise non-recourse financing to fund the acquisition and that Korea Development Bank will play a leading role. Sources close to the deal say the financing will involve some target level financing in the US and some parent level debt raised in South Korea. As Doosan has significant debt capacity, the financing is expected to be largely loans.

Doosan acquired Daewoo Heavy Industries and Machinery in 2005 then changed the name of DaewooÆs US subsidiary, Daewoo Heavy Industries America, to Doosan Infracore. Post acquisition, Doosan retained the Daewoo brand name for North America sales for an interim two-year period then announced in May this year it would henceforth brand its products only Doosan. Doosan Infracore is responsible for North American sales, service, and technical support of all Daewoo û and now Doosan - branded machine tools, construction equipment, lift trucks, skid steer loaders and mini-excavators.

The deal represents the largest outbound M&A deal by a Korean company. Acquisition opportunities within Korea have kept a number of domestic players preoccupied, especially in 2006 as large assets like LG Card and Daewoo Electronics came on the block. But the current deal could herald a wave of change, as a banker from Citi who advised Doosan on the deal explains.

"Recently, Korean companies have faced a dilemma: should they use their cash flows and debt capacity to acquire companies in Korea but outside their core businesses, or acquire outside Korea but within their core business. Unfortunately, the trend has been more often in the former category, but Doosan has set a healthy example of going outside the comfort zone of Korea to build a strong, global business," comments Shaheryar Chishty, Citi's co-head of industrials Asia-Pacific markets and banking.
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