Doosan to resume Bobcat, Robotics merger with new ratio

South Korea’s plant and machinery powerhouse Doosan Group will resume the combination of Doosan Bobcat Inc. and Doosan Robotics Inc. with a new merger ratio to ease criticism from investors and regulators to accelerate the conglomerate’s expansion in the nuclear power plant business.

Doosan Group plans to spin off Doosan Enerbility Co., its power plant building unit and Bobcat’s top shareholder, into a business company and a new entity with a stake in the construction equipment maker, to merge the latter with Robotics, industry and investment banking sources said.

Robotics said on Monday it has increased the merger ratio to 1:0.0432962 from the previous 1:0.0315651, allowing Enerbility’s shareholders with 100 stocks to receive approximately 4.3 shares of Robotics instead of 3.2 stocks, in a regulatory filing. The conglomerate decided not to pursue a plan to make its cash cow Bobcat a wholly owned subsidiary of the losing-making Robotics and eventually merge them for the time being.

“Doosan Group has come up with a new proposal after continuous talks with the financial authorities, as far as I know,” said one of the sources.

After the news, Robotics’ share prices ended up 9.8% at 71,600 won ($52) on South Korea's main stock exchange, far outpacing a 0.4% gain in the benchmark Kospi. The stock hit a three-month high of 78,200 won earlier. Enerbility and Bobcat’s shares also closed up 1% and 1.3%, respectively.

The group plans to hold extraordinary shareholder meetings of Robotics and Enerbility next month on the restructuring.

TO EASE CRITICISM

The new plan came as the group met with strong criticism from investors, who argued that the value of a new parent of Bobcat, which has generated more than 1 trillion won in operating profit for three consecutive years, was estimated too low.

Doosan Group estimated the new parent based on a weighted average of 40% of the asset values and 60% of the earnings value under the Capital Markets Act.

The method caused controversy as the group estimated the earnings based on Bobcat’s stock prices rather than its future earnings including dividends and others saying the share prices reflect the company’s cash flow and dividend income expectations.

The Financial Supervisory Service (FSS) opposed the method while criticizing the restructuring would only benefit their controlling shareholders. The authority also urged to properly assess the valuations of the companies to be merged for shareholders.

That prompted Doosan Group to apply the discounted cash flow, a valuation method that estimates the value of an investment based on its expected future cash flows, and the dividend discount model, a method of valuing the price of a company's capital stock or business value based on the assertion that intrinsic value is determined by the sum of future cash flows from dividend payments to shareholders, discounted back to their present value.

“The measure will force the group holding company Doosan Corp. to have a much smaller stake in Robotics than its original plan,” said another industry source, adding the new plan is expected to boost shareholder value.

LONG-TERM GROWTH

The restructuring is predicted to bolster growth in Enerbility and Bobcat in the longer term, industry sources said.

Enerbility is predicted to win about 10 power plant orders from overseas markets such as Europe, requiring investments in new facilities although Bobcat, which has borrowed 720 billion won, made the parent difficult to manage its funds.

“Enerbility will be able to secure more than 1 trillion won for investments by reducing Bobcat’s borrowings and selling more assets,” said the other industry source. “The company is likely to persuade shareholders saying the restructuring will allow it to invest in nuclear power plant equipment promptly.”

Bobcat is also predicted to make investments for its future regardless of Enerbility’s business conditions, sources said.

“Bobcat hasn’t been able to invest many times because of troubles in the parent Enerbility amid a nuclear power phase-out,” said an investment banking industry source.

Bobcat is likely to create synergy with the new parent Robotics as the group targets the global unmanned and autonomous construction equipment market. Robotics plans to use Bobcat’s sales networks in North America.

(Updated with an official merger ratio and share prices)

Write to Woo-Sub Kim, Jun-Ho Cha and Hyung-Kyu Kim at duter@hankyung.com
 
Jongwoo Cheon edited this article.