Despite denial, Hyundai interested in Doosan

13-Aug-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Despite its denial, Hyundai Heavy Industries Group is still said to have approached Doosan Infracore “indirectly” as acquiring the latter will enable Hyundai to become a dominant leader in the local construction equipment market.

Hyundai Construction Equipment (HCE) has been tapped as a candidate to take over Doosan’s cash-cow construction equipment manufacturing unit. But Hyundai Heavy and the affiliate continue denying this, saying “they have not discussed any plans to acquire Doosan Infracore.”

But the industry is still weighing in on the possibility and the scenario is feasible given the fact that HCE comes in second in terms of its market share here. From a business standpoint, officials say the acquisition makes sense and it would be no surprise to see the deal actually happen. The estimated sale price is around 800 billion won to 1 trillion won.

HCE is the nation’s second-largest player in the construction machinery market following Doosan Infracore, which controls 40 percent. As the Hyundai affiliate holds a share of around 20 percent to 30 percent here, their potential combination would allow Hyundai Heavy to manage a much more powerful construction arm.

Hyundai Heavy is expected to steadily pursue technological progress after the acquisition of Doosan Infracore. The Hyundai affiliate will also be able to enhance its brand reputation after taking over the domestic market leader.

Doosan Infracore generated an operating profit of 154.2 billion won in the second quarter of this year, down 48.1 percent from the previous year. Its sales also reached 1.97 trillion won during the same period, down 10.2 percent from a year ago.

Despite the earnings decline, sales from the firm’s mid-sized to large construction machinery business reached 934.1 billion won during the April to June period, up 7.5 percent from a year ago. This was due to a sales recovery in China’s excavator market accounting for 40 percent of its total sales. Therefore, Hyundai Heavy’s acquisition of Doosan Infracore will help raise its global profile particularly in the lucrative Chinese market.

As of the end of last year, Doosan Infracore came in sixth in the Chinese construction machinery market with a market share of 7.3 percent. HCE had a 3.5 percent market share, making it the eighth-largest market player there.

For this reason, the acquisition, if it happens, will help the integrated entity enhance its influence in the Chinese market and raise its global profile over the longer term.

Another reason that raises the possibility of Hyundai Heavy’s possible acquisition of the Doosan affiliate is because Doosan is unlikely to find buyers overseas due to its involvement in the defense business. This raises concerns over possible technology leaks in foreign markets. Doosan Infracore is a manufacturer of power packs, composed of a diesel engine and transmission, used for K2 battle tanks.

“It is highly unlikely that any firms operating defense-related businesses would sell a majority of their stake to an overseas player on worries over a possible technology leak,” an industry official said.

Doosan Heavy is in a position to keep looking for potential bidders to acquire its major stake in Doosan Infrastructure, but nothing has been confirmed for now.


Category: Korea

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