Companies seeking new growth engines turning to M&As

Kim Young-hun, chairman of Daesung Corp., a leading energy company in Korea, recently asked a corporate executive to examine the acquisition of a social networking service.

At the Davos Forum in Switzerland last month, Kim became immersed in the word "hyper-connection, meaning the world is more connected than ever and superfast and alwayson. This fueled his interest in social networking services that realized this phenomenon.

A Daesung source said, "With the Korean city gas industry reaching growth limits, we are striving to search for new growth engines."

Companies facing stalled growth in core business lines are exploring new opportunities through mergers and acquisitions. The global economic crisis has forced a number of global companies to seek M&As, and this phenomenon has also spread to Korea.

Once a leader in its field, Daewoo Shipbuilding & Marine Engineering is suffering and seeking a buyer.

○ Global economic crisis encourages growth in M&A market

Dongwon Industries is eyeing Spanish canned tuna producer Luis Calvo Sanz, while Korean financial institutions are getting a series of takeover proposals from overseas investors. Daewoo Shipbuilding, Hi-mart, Woongjin Coway, Daewoo Electronics and Winiamando are also on the auction block.

Companies seeking takeovers have ample cash, boding well for M&A vitalization. Bloomberg data shows that the ratio of Korean listed companies` cash to total assets jumped to 6.4 percent (110 billion U.S. dollars) in 2010, up from 3.9 percent (25 billion dollars) in 2002.

Park Yong-rin, a researcher at Korea Capital Market Institute, said, "The U.S. and European central banks are keeping interest rates at low levels, making fundraising much easier. The National Pension Service (of Korea) said it will more actively engage in overseas M&As, which is tempting domestic companies to seek foreign acquisitions via consortium with the pension fund."

○ Rising interest in acquisition of IT companies for convergence

M&A experts say telecommunications, construction and tobacco companies that are seeking new growth engines, as well as marine and shipbuilding companies sensitive to external conditions, are taking relatively huge interest in M&As.

State-owned energy companies are also expected to emerge as big M&A players. KCC Engineering & Construction obtained 1.5 trillion won (13.28 billion dollars) of cash through stock sales, while Korea National Oil Corp. is seeking to expand its business.

Baek Hong-ki, a researcher at Hyundai Research Institute, said, "Besides those seeking business diversification or vertical integration, companies seeking IT convergence are also jumping on the M&A bandwagon."

Though the conditions are ripe for the M&A market, other analysts say, Korean companies might not jump in due to past failures.

Hanwha Group failed in its bid for Daewoo Shipbuilding after being unable to raise additional funds due to financial market turmoil. Kumho Asiana Group suffered a worsening capital structure after acquiring Daewoo Engineering & Construction.

Han Jung-hwa, a business professor at Hanyang University in Seoul, said, "Samsung Electronics` failed acquisition of U.S. computer maker AST and its no-union policy are making it reluctant to seek new businesses through M&As."

mint4a@donga.com