Hyundai’s Hyun may face chal­lenge af­ter builder bid fails

The Pak Banker - - Company & Boss News -

SINGAPORE: Hyundai Group Chair­woman Hyun Jeong Eun failed in an at­tempt to buy a stake in South Korea's largest builder, open­ing up a pos­si­ble chal­lenge for con­trol of her biggest com­pany from her bil­lion­aire brother-in-law.

Share­hold­ers sell­ing 35 per­cent of Hyundai En­gi­neer­ing & Con­struc­tion Co. said yes­ter­day they would end talks with Hyundai Group be­cause of con­cerns about its fund­ing plans. They may now open ne­go­ti­a­tions with Hyundai Mo­tor Group, which lost out in the ini­tial auc­tion last month. The au­tomaker is headed by Hyun's late hus­band's brother Chung Mong Koo.

The col­lapse of Hyun's bid en­dan­gers her grip on Seoul­based Hyundai Mer­chant Ma­rine Co., her group's biggest unit and the holder of con­trol­ling stakes in seven af­fil­i­ates, as Hyundai En­gi­neer­ing owns 8.3 per­cent of the ship­ping line. Get­ting hold of that stake and com­bin­ing it with shares al­ready con­trolled by relatives could en­able Chung to build a block in Hyundai Mer­chant al­most as big as Hyun's.

"Hyundai Group put ev­ery­thing and more into buy­ing Hyundai En­gi­neer­ing be­cause the fate of the group is on the line," said Byun Sung Jin, an an­a­lyst at Mi­rae As­set Se­cu­ri­ties Co. in Seoul. "This deal from the be­gin­ning was a fam­ily fight."

Hyundai En­gi­neer­ing climbed as much as 6 per­cent in Seoul trad­ing on spec­u­la­tion Hyundai Mo­tor would be able to in­vest more in the com­pany than Hyundai Group. It rose 2.1 per­cent to close at 71,600 won, the high­est close in more than a month. Hyundai Mer­chant, South Korea's sec­ond-largest ship­ping line, gained 0.9 per­cent to 40,100 won.

Hyundai Group and Hyundai Mo­tor Group's ri­val bids for the Hyundai En­gi­neer­ing stake ex­tended a decade-long feud in one of South Korea's most pow­er­ful fam­i­lies. Hyundai Group of­fered about 5.5 tril­lion won ($4.8 bil­lion) for the shares, beat­ing the au­tomaker's bid by about 400 bil­lion won, two peo­ple fa­mil­iar with the mat­ter said last month. The of­fer was more than dou­ble the mar­ket value.

The Hyundai En­gi­neer­ing share­hold­ers will de­cide whether to start talks with Hyundai Mo­tor Group at a later date, Korea Ex­change Bank, one of the in­vestors, said yes­ter­day. They also of­fered to act as in­ter­me­di­aries be­tween Hyundai Group and Hyundai Mo­tor Group over the fate of the con­struc­tion com­pany's stake in Hyundai Mer­chant if talks with the au­tomaker be­gin.

"The de­ci­sion to end talks goes against the sale terms," Hyundai Group said in an emailed state­ment. "We will seek a fair de­ci­sion through le­gal chan­nels."

Hyundai Mo­tor Group hopes the share­hold­ers will pro­ceed in a man­ner that fol­lows the bid­ding reg­u­la­tions, said Lee Hwa Won, a spokesman. He de­clined to com­ment fur­ther. Hyundai Mo­tor Co. dropped 1.7 per­cent to 177,500 won.

Chung could marry Hyundai En­gi­neer­ing's stake in Hyundai Mer­chant with the 25.5 per­cent held by ship­builder Hyundai Heavy In­dus­tries Co., con­trolled by his younger brother, and the 5 per­cent owned by KCC Corp., founded by an un­cle who tried to block Hyun's suc­ces­sion. The three stakes to­gether would al­most match the 40 per­cent owned by Hyun and Hyundai Group. An­other 5 per­cent is held by the ship­ping line and its em­ploy­ees.

"The im­me­di­ate is­sue for Hyundai Group could be de­fend­ing its con­trol of Hyundai Mer­chant," said Ahn Soo Woong, head of re­search at LIG In­vest­ment & Se­cu­ri­ties Co. in Seoul. "Los­ing out on Hyundai En­gi­neer­ing will also stunt Hyundai Group's ef­fort to grow its busi­nesses."

In April, Hyun set a tar­get of in­creas­ing Hyundai Group's sales to 70 tril­lion won in 2020 from 10.5 tril­lion won last year, by strength­en­ing its three main busi­nesses-lo­gis­tics, fi­nance and in­fra­struc­ture. Hyun as­sumed con­trol of Hyundai Group af­ter her hus­band com­mit­ted sui­cide in 2003.

Hyundai Mo­tor split off from the main Hyundai Group in 2000, af­ter Chung was snubbed as heir by his fa­ther in fa­vor Hyun's hus­band. A year later, cred­i­tors seized con­trol of Hyundai En­gi­neer­ing, the Hyundai Group's flag­ship, as the Seoul-based builder strug­gled with debts. These cred­i­tors are now sell­ing their stakes.

"It's not go­ing to be easy for the share­hold­ers to find a com­pro­mise over the Hyundai Mer­chant stake," said Mi­rae As­set's Byun. "Hyundai Group and Hyundai Mo­tor Group wouldn't have of­fered such high prices for the Hyundai En­gi­neer­ing shares if they didn't have far big­ger mo­tives."

Hyundai Group also said yes­ter­day that it plans to raise about 2 tril­lion won sell­ing shares in a French unit of Hyundai Mer­chant. Seven po­ten­tial in­vestors have expressed in­ter­est, it said. Hyundai Mer­chant also said yes­ter­day it would sell 10.2 mil­lion new shares in it­self for 32,000 won apiece, 19 per­cent less than yes­ter­day's clos­ing price. Yes­ter­day's an­nounce­ment about the Hyundai En­gi­neer­ing talks won't af­fect these sales, Hyundai Group said.

The Hyundai En­gi­neer­ing share­hold­ers broke off talks af­ter ask­ing Hyundai Group three times for more de­tails about a 1.2 tril­lion won loan from Paris-based Natixis SA. Hyundai Group pro­vided doc­u­ments with­out hand­ing over a copy of the agree­ment, it said on Dec. 17. The doc­u­ments were " in­suf­fi­cient," Korea Ex­change Bank said the same day. Hyundai Mo­tor Group said on Oct. 19 that it planned to in­vest 10 tril­lion won in Hyundai En­gi­neer­ing if it gained con­trol the builder to help boost sales five­fold in a decade.

The au­tomaker in­tended to grow the con­struc­tion com­pany's ex­ist­ing busi­nesses and to push it into new mar­kets such as wind power and re­sources devel­op­ment. -Bloomberg

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