Will Hyundai Motor Group take over Hyundai Engineering ?

Hyundai Motor’s chance of merging with top construction firm is ‘50-50’

Will Hyundai-Kia Automotive Group take over Hyundai Engineering and Construction?
Some Hyundai Motor officials say that the chances are fifty-fifty, while its spokesman said there was no chance at all.

If a reason to deny the rumors is needed, the stock market offered it. Hyundai Motor stock prices tanked after reports about the company's keen interest in the construction firm.
"It is an old story that Hyundai Motor is interested," one source said. "The chance is fifty-fifty."

Industry sources said Thursday, Hyundai Motor Group Chairman Chung Mong-koo, eldest surviving son of the late Chung Ju-young, the founder of Hyundai Group, is seriously considering taking over the construction company, the starting enterprise of the Hyundai business empire.

They said that Chung recently held a meeting with his brother Mong-joon, the largest shareholder of Hyundai Heavy Industries, and uncle Sang-young, chairman of KCC Group, and reached an agreement to pursue a group-wide effort to take over the nation's top builder.

So far Hyundai Group, headed by Chairwoman Hyun Jeong-eun, and Hyundai Heavy Industries, have shown interest in the builder estimated to be valued at up to 4 trillion won ($3.3 billion). Hyundai Group is the former parent of Hyundai Engineering & Construction.

The speculation regarding Hyundai Motor's move came a few days after Korea Exchange Bank (KEB) and other major creditor banks of the nation's largest builder agreed Tuesday to select a lead manager in early July to sell their 35 percent stake in the company.

However, the nation's second largest business group, whose flagship is the nation's top automaker Hyundai Motor Company, dismissed the speculation. "There was no such meeting among the Chungs. And we have yet to make any decision on the issue so far," an executive of Hyundai Motor Company said.

Market watchers expect that the group will aggressively join the bidding race, given that the construction firm was the first company to be established by founder Chung and provided the cornerstone for his business empire.

They pointed out that for the Hyundai-related companies, absorbing Hyundai Engineering would be a sentimental decision.

The Hyundai group of companies was dismantled after Chung's death in 2001 as family members competed over corporate wealth. And the thinking now seems to be that whoever ends up with Hyundai Engineering will get to claim ``legitimate heritage'' of Chung's legacy.

Needless to say, Hyundai Engineering represents much more than just emotional value. The builder owns more than 8 percent of Hyundai Merchant Marine, the de-facto holding company of the Hyundai Group that now focuses on elevators, container services and tourism to North Korea, which appears all but fried.

Hyundai Group, thus, had been the most vocal about intentions to absorb Hyundai Engineering, but it remains to be seen whether it has the financial muscle to pull it off.

Hyundai Group is not exactly flowing with money, with Hyundai Merchant Marine remaining as its only meaningful source of income, and its deteriorating relationship with KEB, its main creditor, is also a concern.

Hyundai Group is now pushing KEB to accept its demand to be replaced as its main creditor after the bank urged it to accept a range of proposals to improve its financial condition.

Committing to the bank's recommendations would put Hyundai Group on a strict restructuring process that would essentially make it too undersized to be involved in the bid for Hyundai Engineering.

Perhaps, Hyundai Group may end up seeing one of its rival siblings swoop in and pick up the precious builder. Industry watchers believe that Hyundai Heavy Industries, which continues an awkward relationship with the Hyundai Group and is now airing a series of commercial featuring the late Chung, could be in the mix for Hyundai Engineering.

Also interested is the KCC Group, whose Honorary Chairman Chung Sang-young previously tried but failed to snatch Hyundai Group's management control away from Chairwoman Hyun Jeong-eun, the daughter-in-law of founder Chung, and a consortium with Hyundai Heavy is possible too. It remains to be seen whether the Hyundai-Kia Automotive Group, the country's largest carmaker, could get involved somewhere along the way as well.

Non-Hyundai bidders

Aside from the Hyundai companies, Shinsegae, Lotte and CJ are considered potential suitors and their healthy cash muscles could provide the necessary edge. Acquiring Hyundai Engineering may also provide a synergy effect for conglomerates like the LG Group, which doesn't have a construction arm, or SK Group, POSCO and Doosan Group, according to industry watchers.

Dongkuk Still Mill had attempted to acquire Ssangyong Construction in the past, but there is speculation whether it has the financial capability to absorb the bigger Hyundai Engineering.

``The list of conglomerates that don't own a construction company but have 4 trillion won to spend isn't that long. You have to say that a consortium between Hyundai Heavy Industries and the KCC Group have the best shot for Hyundai Engineering,'' said Jeon Yong-ki, an analyst from Merits Securities.

Hyundai Engineering posted more than 9 trillion won (about $7.4 billion) and currently holds approximately 1.4 trillion won in cash and cash equivalents.

By Kim Jae-kyoung, Kim Tong-hyung
Staff reporters
kjk@koreatimes.co.kr
thkim@koreatimes.co.kr