There are further signs that Korea is experiencing significant changes in its corporate landscape, as assets are shuffled between leading conglomerates and private equity firms. Often, the febrile activity matches the debt-burdened with the cash-rich.
The latest deal was announced yesterday, as Woongjin Holdings said it will sell Woongjin Coway, a leading Korean water purifier manufacturer, to MBK Partners for W1.2 trillion ($1.1 billion).
MBK will pay W50,000 a share for the 28.4% stake and the 2.5% owned by the children of Woongjin chairman and founder Yoon Seok-keum. That represents a 33% premium to Coway’s Tuesday closing price of W37,550 a share.
Goldman Sachs arranged the deal for Woongjin, and it follows the US bank’s success as adviser to Lotte Shooping, which bought a 65.25% stake in electronics discount retailer Hi-Mart from a consortium of sellers in July. Both the Hi-Mart and Coway stakes were put up for auction in February.
The proceeds from the Coway sale will be used to repay debt accrued by Kukdong Engineering & Construction, bought by Woongjin in 2007, and also to help finance the operations of its solar panel manufacturing division.
Yoon has gained a reputation during the past 30 years as a restless entrepreneur, so a switch of emphasis to a new business with potential is unsurprising.
Yet, Woongjin Coway has been a cash cow for the holding company. Its business model is based on commission-driven sales by 16,000 women who visit Korean homes twice a month to service rented water purifiers, armed with catalogues offering a range of consumer goods. Coway has more than 50% of Korea’s water purifier market — water straight from the tap is undrinkable in Korea. More recently, the company has branched out into bidets and mattress cleaning.
MBK, a Korean private equity firm run by former Carlyle Asia president Michael Kim, defeated rival bids from GS Retail, KTB Private Equity and Konka, which is owned by Overseas Chinese Town Group and is one of China’s leading white goods retailers, according to a person familiar with the transaction. A surprising absentee was LG Group, for whom Coway might have provided an opportunity to add to its own 10% share of the domestic water purifier market.
KTB, another domestic PE company, was a late arrival at the auction, and proposed setting up a special purpose vehicle that would have allowed Woongjin to retain management control of Coway. About two weeks ago the two companies signed a memorandum of understanding, but then Woongjin changed its mind.
Instead, it chose MBK as its preferred bidder, although GS Retail apparently offered the same price. A deal clincher was MBK’s willingness to give Woongjin the right of first refusal to buy back its stake. No resale price has been agreed, but nor is there a time limit.
MBK was also under pressure to achieve a successful purchase after its aborted bid to buy Hi-Mart last month. The market had reacted negatively when it was first selected as preferred bidder and eventually it turned away, leaving the field clear for Lotte Shopping.
Also, at the beginning of this month, Daewoo International sold its holding in Kyobo Life Insurance for $1.1 billion to a group of investors led by Affinity Equity Partners and Singapore’s GIC.
Coway’s share price closed 1.46% higher yesterday compared with a flat performance by the Kospi benchmark index.