Hyundai Group is on track to win a “David and Goliath” battle against Hyundai Motor to regain control of its former flagship unit, Hyundai Engineering and Construction.
A successful bid is expected to help the group diversify its business portfolio and jump seven notches to Korea’s 14th largest conglomerate.
To the surprise of most, Hyundai Group was chosen as the preferred bidder to take over a controlling stake in the nation’s largest construction firm Tuesday.
Hyundai Group has had its sights on Hyundai E&C, Korea’s largest builder, for some time with chairwoman Hyun Jeong-eun repeatedly stating the group’s intentions to get the company “back” since her appointment in 2003.
Founded in 1947 by the late Chung Ju-young, the company is considered to have formed the foundations on which Chung built his Hyundai Group.
Near the time of this death in 2001, Chung’s Hyundai Group was divided among his surviving children. Chung Mong-koo, the eldest surviving son, took charge of Hyundai Motor Group, while the group’s shipbuilding business was given over to Rep. Chung Mong-joon of the Grand National Party.
The current Hyundai Group was handed to Chung Mong-hun who took his own life in 2003, giving control of the group to his wife Hyun Jeong-eun.
Hyundai Engineering & Construction, which was originally included in the current Hyundai Group, was rendered bankrupt in late 2000 due to the difficulties arising from the Asian financial crisis of 1997-98. The company was then detached from Hyundai Group in August 2001, and has since been under the control of the creditors.
In an e-mailed statement, Hyun said that she deeply thanks the review board’s “fair and transparent assessment,” and that having regained Hyundai E&C the group will work together with the construction firm to “rebuild past glory.”
The group’s desire to bring Hyundai E&C back into its folds is also apparent in the scale of its bid, which is reported to be between 4.8 trillion and 5.5 trillion won ($4.2 billion and $4.8 billion).
The value of the deal, in which Hyundai E&C creditors will hand over 34.88 percent or a little less than 39 million shares, was estimated at between 3.5 trillion and 4 trillion won.
Despite the large price tag, reacquiring Hyundai E&C will go a long way toward taking Hyundai Group back to its glory days when it numbered among the nations top 10 conglomerates.
Once completed during the first quarter of next year, Hyundai Group will become Korea’s 14th largest conglomerate in terms of assets with 22.3 trillion won 9.8 trillion won from Hyundai E&C and Hyundai Group’s 12.5 trillion won.
In terms of sales, Hyundai Group’s figures will be doubled. Last year Hyundai E&C recorded sales of 10.7 trillion won matching that of Hyundai Group as a whole.
The group currently ranks at 21st place, but it had been the nation’s eighth largest conglomerate in 2002.
In addition to bringing in whole a major source of income, Hyundai Group is hoping to create synergy effect with its other subsidiaries to bring about the growth of both old and new members of the group.
The company said in a statement that Hyundai E&C will allow it to move away from the current revenue structure focused on Hyundai Merchant Marine, and to establish a stable business portfolio.
Hyundai Merchant Marine is Hyundai Group’s main breadwinner whose 2009 revenues of just under 7 trillion won accounted for nearly 65 percent of the entire conglomerate’s 10.7 trillion won.
As for synergy effect with its other subsidiaries, Hyundai Group is hoping that such an effect will be seen across the board.
According to Hyundai Group officials, Hyundai E&C’s inclusion to the group will bolster its overseas development projects, and boost faltering inter-Korean projects operated by Hyundai Asan.
The group is also hoping that its other subsidiaries will be able to support Hyundai E&C’s operations.
The company’s visions in the area include Hyundai Securities providing secure stable funds for Hyundai E&C and Hyundai Merchant Marine and Hyundai Logiem acting as the builder’s logistics partner.
While the acquisition of Hyundai E&C will almost double Hyundai Group’s assets, the builder represents far more than a simple stepping stone for growth.
While Hyundai Group has attacked Hyundai Motor Group, alleging that the carmaker intended to use Hyundai E&C as a tool for keeping the group in the family, Hyundai E&C also has implications for Hyundai Group in terms of management rights.
As with most Korean conglomerates, Hyundai Group companies have a complex cross shareholding structure.
Hyundai E&C holds 8.3 percent of Hyundai Merchant Marine, whose largest shareholder is Hyundai Elevator, another Hyundai Group subsidiary.
Hyundai Elevator is 3.9 percent held by the Hyundai Group chairwoman and 20.9 percent held by Hyundai Logiem Co., yet another Hyundai Group company.
Hyundai Logiem, in turn, is 37.32 percent held by Hyundai Merchant Marine and 12.61 percent held by Hyun.
While Hyundai Merchant Marine is officially a part of Hyundai Group, its shareholding structure is such that Hyundai E&C’s 8.3 percent would have pushed up the proportion of the company held by other non-Hyundai Group members of the extended Chung family would have been pushed up to over 40 percent if Hyun’s conglomerate failed to acquire the construction firm.
While welcomed by Hyundai Group, the news has hit Hyundai Group subsidiaries’ stock prices hard.
Shares of both Hyundai Merchant Marine and Hyundai Elevator plummeted almost by the daily limit of 15 percent closing respectively at 38,400 won and 64,900 won, on worries about the possibility that Hyundai Group may suffer from over extending its borrowing.
By Choi He-suk (firstname.lastname@example.org)