Near $10 bn M&As in Korea this week – Hanon and Daewoo E&C

This week beholds near $10 billion M&A activities in South Korea, including $7 billion deal over automotive thermal management system leader Hanon Systems.

Hanon Systems will invite preliminary bids for its 70 percent stake – 50.5 percent owned by Hahn & Co. and 19.5 percent by Hankook Tire & Technology Co. – on Tuesday, according to industry sources on Sunday.

The stake plus management premium is expected to fetch 7-8 trillion won ($6.17-7.05 billion), experts say.

Hanon Systems shares finished 1.93 percent higher at 18,450 won in Seoul trading on Monday.

Because the Kospi-listed firm is global No. 2 in automotive thermal and energy management solutions, contenders are expected to be high-profile including LG and SK at home and France¡¯s Valeo and Germany¡¯s Mahle.

Valeo is said to have already hired JP Morgan as the financial advisor for the Hanon Systems deal, and Mahle with Deutsche Securities in hopes of challenging the global No. 1 Denco Corporation of Japan.

Major global private equity firms including The Carlyle Group and KKR are also considered potential candidates.

On Friday, a tender for a government-held 50.76 percent stake in Daewoo Engineering & Construction Co. will close. Korea¡¯s No. 6 construction and engineering company can be finally privatized after failed attempt in 2017.

Daewoo E&C has turned around with enhanced business fundamental and operating margin. Last year, the company reported an operating profit of 558.3 billion won on sales of 8.14 trillion won. Operating margin and net margin rose to five-year best of 6.86 percent and 3.47 percent, respectively.

Top candidates are midsized builder Jungheung Construction and real estate developer DS Networks.

Daewoo E&C shares now are trading at 8,000-9,000 won apiece, much higher than the 5,000 won level of early this year. Its 50.76 percent ownership is currently valued at 1.8 trillion won, up from 1 trillion won, even excluding the management premium. Hoban, who tried to buy Daewoo E&C but later withdrew from the deal, offered 1.6 trillion won in 2018.

Daewoo E&C shares fell 2.61 percent to end at 8,210 won on Monday.

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