Posco unsure on acquisition of ‘Dongbu package’

The sale of Dongbu Steel’s Incheon plant and Dongbu Power Dangjin Corp. is not likely to happen soon because Posco, which is likely to buy the two companies, has not made a decision even after carrying out due diligence.

The sale of the two companies, known as “the Dongbu package,” is part of Dongbu Group’s 3 trillion won ($2.9 billion) debt restructuring plan to put itself back on solid financial ground.

Dongbu’s main creditor, Korea Development Bank (KDB), proposed in March that the nation’s largest steelmaker buy the two companies, because they are in line with Posco’s existing businesses.

“As far as I know, Posco has finished due diligence, and is trying to make up its mind,” Financial Supervisory Service Governor Choi Soo-Hyun told reporters on Tuesday. “I heard it has yet to submit a formal proposal to the KDB.”

According to Posco, its executive meeting on Monday ended with no progress regarding the acquisition.

Industry observers speculate that Posco’s M&A team has valued the Dongbu package below 70 billion won, which is far less than the Dongbu Group and creditors’ evaluation.

Dongbu, the nation’s 17th-largest conglomerate, previously said that its Incheon plant, which produces color-rolled steel sheets, should be worth at least 650 billion won, while the plant in Dangjin, South Chungcheong, is worth 250 billion won.

With a “management premium” included, Dongbu and its creditors expect to receive more than 1 trillion won in the sale.

KDB, which is overseeing Dongbu’s debt restructuring, offered its private equity unit to support Posco, allowing the world’s No. 4 steelmaker to buy only a 30 percent stake to control Dongbu Steel’s Incheon plant.

Since Posco isn’t moving quickly with its offer, industry insiders are suspicious that the steelmaker choose not to acquire Dongbu package.

BY joo kyung-don [kjoo@joongang.co.kr]