Doosan Robotics, Bobcat merger prompts call for law revision

Doosan Group’s announcement of a merger between Doosan Robotics Inc. and Doosan Bobcat Inc. has met with strong criticism from investors and politicians.

They argue that the combination will harm minority shareholder interests, calling for a revision to the Capital Markets Act to properly assess the valuations of the companies to be merged.

On Sunday, the South Korean business group said that Doosan Robotics will merge with Doosan Bobcat by early next year.

The move aims at freeing up the construction machinery maker from fair trade regulations that force Bobcat, as a sub-subsidiary of holding company Doosan Corp., to purchase 100% of targeted acquisitions and thus help it take a leading role in chasing M&As.

Shareholder activists argued that their 1:1 merger ratio significantly inflated loss-making Robotics’ value or sharply diminished the enterprise value of Bobcat, the group’s cash cow.  

They blamed it on the current Capital Markets Act, which stipulates that a merger between listed companies be based on their average share prices over the past month.

Cheon Joonbum, vice chair of the Korean Corporate Governance Forum (KCGF), said that the law could be abused to help the largest shareholders cement their control of companies through a merger or spin-off.

In a seminar hosted by the KCGF on Monday, he pointed out that in the Securities Prospectus submitted for the merger, Doosan foresaw low growth possibilities in the market for collaborative robots, in which Doosan Robotics specializes. But it failed to provide the objective information needed to accurately measure Robotics’ current valuation.

The shareholder activist said that Doosan Enerbility Co., Bobcat and Robotics did not consider shareholder interests affected by a spin-off of Enerbility and share swaps.
 
By inflating Robotics’ valuation, Doosan Corp., a majority shareholder of Robotics with a 68% stake, would increase its ownership of the merged entity between Robotics and Bobcat, Cheon claimed.

He urged the three Doosan Group units’ boards of directors to reexamine their announced corporate restructuring.

BREACH OF TRUST

Kim Hyung-jung, a lawmaker of the opposition Democratic Party, said in the seminar that their merger may constitute a breach of trust because Bobcat’s enterprise value would not be properly reflected in their merger process.

She argued that if financial authorities approve the merger, it would violate the financial authorities’ obligation to protect investors.

The same day, Kim Byung-hwa, a regulatory Financial Services Commission (FSC) chairman nominee, said in his National Assembly confirmation hearing that he was aware of market concerns about the proposed merger between Robotics and Bobcat and that he would look into whether there were any areas to be addressed.

“I think companies should communicate with shareholders first when pursuing this (kind of decision),” he said in response to a lawmaker’s claim that Doosan Group’s corporate reshuffling through the two units’ merger would harm minority investors’ interests.

To merge with Bobcat, Robotics will take full control of the affiliated company by taking over the latter's stake held by Enerbility and securing the remainder in a tender offer. In return, Bobcat shares will be exchangeable with those of Doosan Robotics.

“(Doosan Group) would not have been able to do this if the commercial law had a clause of duties and responsibilities (stating that) the board of directors consider the interests of all shareholders,” said Kim Kwang-joong, a lawyer at ClassHankyul, a law firm.

In 2023, Bobcat earned 1.39 trillion won ($1.0 billion) in operating profit and holds around 1.8 trillion won in cash and cash equivalents as of the end of March.

In contrast, Robotics has suffered losses over the past few years. Last year, it posted 19.1 billion won in losses.

Write to Haeyoung Park at bono@hankyung.com
Yeonhee Kim edited this article.