Doosan to resume Bobcat, Robotics merger with new ratio

South Korea’s plant and machinery powerhouse Doosan Group will resume the merger of Doosan Bobcat Inc. and Doosan Robotics Inc. using a new merger ratio to ease criticism from investors and regulators and speed up its expansion into the nuclear plant business.

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

Robotics said on Monday it increased the merger ratio to 1:0.0432962 from the previous 1:0.0315651, thus allowing Enerbility shareholders to swap 100 stocks for 88.5 Enerbility shares plus 4.3 Robotics shares instead of 3.2, in a regulatory filing. The conglomerate decided not to pursue a plan to make its cash cow Bobcat a wholly owned subsidiary of the loss-generating Robotics but to merge them for the time being.

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

After the news, Robotics’ shares ended up 9.8% at 71,600 won ($52) on Korea's main bourse Kospi, far outpacing the market's overall 0.4% gain. Earlier, the stock hit a three-month high of 78,200 won. Enerbility and Bobcat’s shares closed up 1% and 1.3%, respectively.

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

TO EASE CRITICISM

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

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

The method stoked controversy as the group estimated the earnings based on Bobcat’s share price rather than its future earnings, saying the share price reflects the company’s cash flow and dividend income expectations.

The Financial Supervisory Service (FSS) opposed the method, saying the restructuring would only benefit their controlling shareholders. The FSS also urged a proper assessment of valuations of the companies to be merged.

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, which values the price of a company's capital stock or business value based on the notion 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 that the new plan is expected to boost shareholder value.

LONG-TERM GROWTH

The restructuring is expected to boost growth in Enerbility and Bobcat over the long term, industry sources said.

Enerbility is forecast to win some 10 power plant orders from overseas markets such as Europe that require investments in new facilities. But Bobcat, which has borrowed 720 billion won, has made it difficult for the parent 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 an industry source. “The company is likely to persuade shareholders by saying the restructuring will allow it to promptly invest in nuclear power plant equipment.”

Bobcat is also expected to make future-focused investments regardless of Enerbility’s business conditions, sources said.

“Many times, Bobcat hasn’t been able to invest because of troubles in the parent Enerbility amid a phase-out in nuclear power,” 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 tap Bobcat’s sales network 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.