Including about 50 billion won ($44.5 million) worth of additional investment, Dongbu Group, which was previously one of 20 largest conglomerates in South Korea, is mulling measures to secure new capital to replace financial investors and maintain ownership of its electronics business. Financial investors of Dongbu Daewoo Electronics, on the other hand, are pressing the group to sell the company’s majority stake.
According to sources in the financial and electronics industries, the group is struggling to get China’s Aucma as a business partner and financial investor with a plan to expand further into the global market by capitalizing on the Qingdao-based electronics provider’s distribution network across China.
“What Dongbu Group wants is to have a win-win partner that it can get financial help from while keeping the management stake and maintaining the electronics business,” a source told The Korea Herald.
“The Aucma plan includes not only the 135.6 billion won the current financial investors want to retrieve, but also about 50 billion won worth of new investment for enhancing the company’s R&D arm.”
By winning the Chinese firm’s financial help and forging ties, Dongbu Daewoo Electronics can strengthen its presence in the low- and mid-priced home appliances market worldwide, the source said.
“In order to have the business stay afloat, an urgent task is to cut costs,” an industry official said. “Dongbu Daewoo’s production lines in Korea are being operated at high costs compared to low margins from its low-price products.”
“If it joins with Aucma, a large portion of its production operations would be better relocated to China,” the official said.
Since early this year, Dongbu Group has been seeking to sell 46 percent stake in the electronics unit with management rights, due to a failure of meeting requirements imposed by its financial investors in exchange for 135.6 billion won in investment in 2013.
One of the requirements was to have the electronics business go public on the stock market by 2018, but an initial public offering remains a tough challenge for Dongbu Daewoo, considering its drastically slashed operating profit from 9.5 billion won in 2015 to 1.9 billion won last year.
All the while, the group’s efforts to attract new capital from Aucma has been postponed amid the rising tension between Korea and China over the issue of the deployment of the US’ Terminal High Altitude Area Defense anti-missile system.
“Since Aucma is owned by an investment corporation of the Chinese government, the THAAD impact was inevitable,” the source said.
After several months of delays, the financial investors recently chose NH Investment & Securities to send a teaser letter to investors around the world regarding the sale of 100 percent of the Dongbu electronics unit before officially opening bids. The sale also included Dongbu Group Chairman Kim Joon-ki’s stake in the unit.
According to some news reports, Sweden’s Electrolux has recently shown interest, raising possibilities of it participating in the upcoming bid.
The Swedish firm had attempted to acquire Daewoo Electronics in 2011 before it was bought by Dongbu Group. The company is eyeing Dongbu Daewoo’s production facilities in Mexico in the vicinity of Electrolux’s factory, according to reports.
“It is still too early to talk about the possibility of Electrolux taking over the Dongbu unit,” said a financial source. “In the past attempt, the Swedish firm thought the company was more expensive than it was willing to pay.”
Korea‘s third-largest conglomerate SK Group‘s subsidiary SK Networks is also one of the possible bidders according to reports, but an official from the company has denied the notion.
Dongbu Group is internally trying to avoid the sale of the electronics business, hoping the ongoing deal with Aucma proceeds smoothly.
“If the sale led by financial investors goes successfully, Dongbu Daewoo Electronics will be wholly owned by a new owner, which many at the company don’t want,” said a company official. “With Aucma, we are seeking new investment and a partnership for synergy.”
The official, however, dismissed the possibility of relocating its Gwangju factory to China, even if the deal goes well.
By Song Su-hyun (firstname.lastname@example.org