Posco, Hyundai Heavy Bid for Majority Stake in Daewoo...

Posco and Hyundai Heavy Industries Co. joined two other South Korean companies to bid for a majority stake in Daewoo Shipbuilding & Marine Engineering Co.that could fetch as much as 7 trillion won ($6.5 billion).

Four bids were made, including those from GS Group and Hanwha Group, before the 3 p.m. deadline today, according to state-controlled Korea Development Bank. The lender and Korea Asset Management Corp. are selling their 50.4 percent stake, valued at 3.4 trillion won at today's close, in the shipbuilding industry's biggest sale.

A stake in Daewoo, the world's third-biggest shipyard, would allow the winning company to enter offshore oil- exploration structures as soaring crude prices and depleting reserves in shallow waters increase the need for deepsea exploration and production. The winner would also benefit from Daewoo Shipbuilding's record order backlog.

``There is so much interest from companies wanting to move into the offshore business,'' Cho In Karp, analyst at Good Morning Shinhan Securities Co., said in Seoul. ``That will most likely drive up the selling price.''

Korea Development Bank will review the bids and select a shortlist to look through Daewoo Shipbuilding's books by early September. A preferred bidder will be named by mid-October.

Korea Development Bank and Korea Asset Management swapped Daewoo Shipbuilding's debt for equity in December 2000 after its parent Daewoo Group collapsed from mounting debts from the 1997- 98 Asian financial crisis.

Offshore Business

GS Group, owner of South Korea's fourth-largest builder, and Hanwha Group, which controls the country's biggest explosives maker, plan to enter the offshore business by combining their plant construction operations with Daewoo Shipbuilding's offshore-platform business.

No foreign investor bid for Daewoo Shipbuilding today. It isn't ``desirable'' to sell the stake overseas because of the shipbuilder's defense business, Jun Kwang Woo, chairman of South Korea's Financial Services Commission, told lawmakers on Aug. 12.

Seoul-based Daewoo Shipbuilding and Ulsan-based Hyundai Heavy build warships and submarines for South Korea's military.

GS Group is being advised by UBS AG, while Merrill Lynch & Co. is advising Posco and JPMorgan Chase & Co. is advising Hanwha Group. Hyundai Heavy is being advised by Morgan Stanley.

Daewoo Shipbuilding has about $11.6 billion in orders so far this year, meeting 66 percent of its full-year target. It expects to win a record $6 billion of contracts in 2008 for offshore structures, including drill ships and semi-submersibles.

Triple the Size

A successful takeover by Hyundai Heavy would expand its size to triple its nearest rival Samsung Heavy Industries Co. The move would also strengthen the combined entity's ability to bargain with Pohang-based Posco, the biggest supplier of ship plates in South Korea.

Posco said in a statement today that the acquisition would ``secure an engine for future growth and make it the top player in the shipbuilding and marine business.''

``We plan to build a large-scale block plant in steel mills to build hulls and supply them to Daewoo Shipbuilding,'' it said.

Posco had 6.1 trillion won in cash and cash equivalents at the end of June, while Hyundai Heavy had 8.8 trillion won, according to their first-half earning statements.

State-linked National Pension Service, South Korea's largest investor, said on Aug. 19 it may spend as much as 1.5 trillion won to make a joint bid for Daewoo. The fund has been in talks with companies that have shown interest, including Posco.

Shares of Hyundai Heavy fell 2.9 percent to close at 237,000 won in Seoul. Posco rose 2 percent, the most in almost two weeks, to 471,000 won.

Hanwha Corp. gained 4.2 percent to 38,500 won. GS Holdings Co., a unit of GS Group, climbed 0.3 percent to 29,650 won.

The benchmark Kospi index added 0.3 percent.