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Hyundai Motor submitted their Bid to Acquire Hyundai Engineering

Hyundai Motor Group, parent of Korea’s two largest carmakers, will bid  for a $2.5 billion stake in Hyundai Engineering & Construction Co., setting up a contest between the nation’s second-richest man and his brother’s widow

The group, which includes Hyundai Motor Co. and Kia Motors Corp., will submit a letter of intent today, it said in a regulatory filing in Seoul.

A successful bid would reunite Hyundai Motor with former affiliate Hyundai Engineering, the nation’s largest builder. Hyundai Engineering’s creditors, including Korea Exchange Bank, will accept final bids for their combined 35 percent share in the construction company by Nov. 12, sale arrangers Bank of America Corp.’s Merrill Lynch & Co., Woori Investment & Securities Co. and Korea Development Bank said last week.

“Buying into Hyundai Engineering is a part of Hyundai Motor’s efforts to develop a new engine of growth,” said Yim Eun-young, a Seoul-based analyst at Dongbu Securities Co. “It’s not unreasonable for Hyundai Motor to consider acquiring a stake if the price is reasonable.”

Hyundai Engineering’s market capitalization is about 8.32 trillion won, pricing a 35 percent stake at about 2.91 trillion won ($2.5 billion), based on today’s closing share price.

Hyundai Motor Group will compete with Hyundai Group, which said today it may submit a preliminary bid for the stake before Oct. 1. Hyundai Group affiliates Hyundai Merchant Marine Co., Hyundai Elevator Co. and Hyundai Securities Co. said in August they planned to make an offer.

Hyundai Motor and its affiliates severed ties with the former Hyundai Group in 2000 as part of a plan to split the business into three operations, each of which was to be managed by one of founder Chung Ju-yung’s three sons.

The carmaker is controlled by Chung Mong-koo, the son of the founder, while his brother’s widow, Hyun Jeong-eun, controls the current Hyundai Group. The old Hyundai Group’s shipbuilding unit, which includes shipyard Hyundai Heavy Industries Co., was also spun off.

Hyundai Motor is involved in the construction business through its unlisted Hyundai Amco Co. unit and has no plans to merge it with Hyundai Engineering, it said today. The group also said it would keep the current workforce at Hyundai Engineering after a takeover.

“We decided to bid for Hyundai Engineering in order to strengthen the group’s business portfolio for future growth,” Hyundai Motor Group said in a regulatory filing today.

While a stake in Hyundai Engineering could help protect the automaker from a sudden slowdown in the car business, it risks losing focus if it expands into a new industry, said Park Hwa-jin, a Seoul-based analyst at Shinyoung Securities Co.

“It’s too early to judge how Hyundai Engineering could contribute to Hyundai Motor Group while it still has many things to accomplish in the car business, such as adding environmentally friendly models,” Park said.

Hyundai Motor was unchanged at 161,500 won in Seoul trading Monday, while Hyundai Engineering gained 4.9 percent.

Hyundai Merchant Marine, Korea’s second-largest shipping line, jumped to its highest in almost three years in Seoul trading. The company rose by the daily limit on speculation a battle for Hyundai Engineering may also lead to a fight for control of the shipping line, said Kang Seong-jin, an analyst at Tong Yang Securities Inc.

Should Hyundai Motor Group acquire a stake in Hyundai Engineering, the deal may be its largest since 1998 when it acquired shares in Kia Motor Corp. for 1.2 trillion won in cash and assumed debt of 2.7 trillion won, according to data compiled by Bloomberg.

The group plans to finance the acquisition internally, it said. Hyundai Motor and Kia had combined cash and equivalents of 9.2 trillion won as of the end of June, according to their financial statements.

Hyundai Engineering’s creditors plan to sell their stake for as much as 20 percent more than its market value, an official at one of the creditors said earlier this month. He declined to be identified because the information isn’t public.
Hyundai Motor Group hired Goldman Sachs Group Inc. and HMC Investment & Securities Co. as financial advisers while Kim & Chang was picked as a legal advisor to work on the bid, it said in the filing, confirming previous local media reports.


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