Doosan's Robotics-Bobcat merger plan slammed for punishing minority shareholders

Doosan Group announced its intention to create a new investment entity with Doosan Bobcat and Doosan Robotics, but the merger ratio for shares imposes a 37 percent cut in share value for Bobcat shareholders.

Production site of Doosan Robotics in Suwon, Gyeonggi [DOOSAN GROUP]

Doosan Group’s recent governance shake-up announcement is facing criticism for unfairly benefiting its controlling shareholders, appearing to buck growing calls to improve corporate governance practices in Korea.

On July 11, the group announced that it will streamline its governance structure by merging Doosan Bobcat, a construction equipment manufacturer, with Doosan Robotics, a much smaller robot developer.

The plan is to spin off a new investment entity from Doosan Enerbility, which is currently the largest shareholder of Doosan Bobcat at 46 percent, and merge the new entity with Doosan Robotics.

Doosan Bobcat will be delisted from the Kospi bourse and incorporated under the upcoming spin-off as a wholly owned subsidiary, meaning that the equipment supplier will be controlled by Doosan Robotics.

As a result, minority shareholders’ 54 percent stake in Doosan Bobcat will be swapped with new shares issued by Doosan Robotics at a swap ratio of 0.63 to one, meaning that every Doosan Robotics share is estimated to be worth 63 percent of a Doosan Bobcat share.

Critics argue that the swap ratio was set in favor of Doosan Robotics and Doosan Corporation, the group’s holding company that has a 68 percent stake in the company, at the expense of minority shareholders of Doosan Bobcat and Doosan Enerbility.

Both Doosan Robotics and Doosan Bobcat were similar in size in terms of market capitalization as of July 11. However, the robotics developer has been losing money, logging an operating loss of 19.17 billion won ($13.87 million) last year, while the compact construction equipment maker posted an operating profit of $1.06 billion, effectively serving as the group’s key cash generator. Doosan Robotics’ net assets are also worth only around 400 billion won, while Doosan Bobcat has net assets worth some 6 trillion won.

The biggest beneficiaries of the shake-up are considered to be Doosan Robotics, which will be able to secure cash through Doosan Bobcat, and Doosan Corporation, as the holding company has held no direct stake in Doosan Bobcat so far. After the restructuring, Doosan Corporation and its owning family will be able to secure more controlling power over Doosan Bobcat through Doosan Robotics.

The plan requires approval at a shareholder meeting scheduled for September. If approved, the spin-off and subsequent merger will take place in October.

“Doosan Robotics’ need to acquire Doosan Bobcat is bigger than Doosan Enerbility’s need to sell Doosan Bobcat; in such a situation, the most favorable option for regular shareholders of Doosan Enerbility and Doosan Bobcat would be selling Doosan Bobcat shares directly to Doosan Robotics through price negotiation,” said Solidarity for Economic Reform, an activist organization, in a statement published Wednesday.

“However, the boards [of Doosan Enerbility and Doosan Bobcat] did not choose this option because they prioritized the benefit of the group over that of general shareholders.”

The organization called for a revision of the Commercial Act to impose a greater responsibility on the board of directors to consider minority shareholders.

The Korea Corporate Governance Forum also slammed the decision by the boards, saying that “this is the worst abuse of the merger-ratio regulation of listed companies under the Capital Markets Act” in a statement Friday, stressing that “this exposes the reality of the Korea discount.”

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]