Kumho-Asiana leads race for Korea Express

The Korean conglomerate wins a hotly contested auction to emerge as the preferred bidder for a controlling stake in the local logistics company.
Kumho-Asiana Group was yesterday selected as the preferred bidder for a controlling stake in Korea Express, the country's largest logistics company. The consideration has not been disclosed but it is estimated that Kumho has valued the 60% stake at about W4 trillion ($4.2 billion).

Kumho-Asiana, KoreaÆs seventh-largest conglomerate with assets of W22.8 trillion, out-bid a number of competing bidders for what is one of the most attractive assets to come up for sale in Korea. Hanjin Group, LS Cable, GS, Nonghyup, Hyundai Heavy Industries, and STX are all said to have been interested in the offering. The sale is for 24 million new shares in Korea Express, equivalent to 60% of its expanded capital base.

Korea Express has strong logistics, container, and parcel delivery service businesses as well as an extensive network through the US, China, Japan, and Southeast Asia. The company provides inland, sea and air transportations, and stevedoring in North Asia and the US. It also processes sewage and organic waste-water, provides various moving as well as car rental services and operates terminals for containers.

Intense competition for the asset drove the winning bid substantially above the minimum price of W2.3 trillion ($2.53 billion) set by Seoul's courts. The courts have controlled the company since it was put under receivership in 2001 after Korea Express failed to repay debt payment guarantees for its parent company Dong-Ah Construction Industrial, which collapsed following the Asian financial crisis.

Some commentators believe Kumho has bid too aggressively and fear that it will be KumhoÆs biggest subsidiary, Daewoo Engineering and Construction, that will bear the brunt of the cost. This led DaewooÆs share price to plunge around 10% to W20,050 on the Korea Stock Exchange yesterday, having opened at W22,400.

The structure of the deal does not provide an exit for existing shareholders. Some sources deem this surprising since Korea Express's three major shareholders are currently Goldman Sachs, with a 20.6% stake, and STX Pan Ocean and Kumho-Asiana, each with about 14%. It is unlikely that Kumho-Asiana will want STX to retain such a large shareholding in the company post-acquisition.

Kumho-Asiana is expected to sign a memorandum of understanding next week and will have a three-week due diligence period before the terms of the acquisition are finalised. The final agreement is expected to be signed on February 22.

The current year has begun well for M&A advisers in Korea, after a mixed 2007.

Private equity firms stood on the sidelines for much of 2007 as they awaited a resolution to Lone Star's problems with exiting Korea Exchange Bank (KEB). In late 2007 Lone Star announced a deal to sell KEB to HSBC but key approvals for the deal are still not in place. Other inbound M&A transactions such as the sale of Daewoo Electronics were aborted, when the preferred bidder Videocon-Ripplewood asked for significant adjustments following the due diligence process.

But 2007 was also the year that Korean companies started looking outwards, encouraged by the success of other Asian companies in closing large outbound acquisitions and by depressed valuations in some subprime-affected economies. Funding for these deals was easy enough to raise from a local banking system with ample liquidity. Doosan Infracore's winning $4.9 billion bid for Ingersoll Rand's bobcat division in August caused a number of other Korean conglomerates to start thinking strategically about targets in Europe and the US.

Merrill Lynch and Samil PricewaterhouseCoopers are managing the sale of Korea Express.
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