Hanwha to become Korea’s main defense giant

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Hanwha to become Korea’s main defense giant

The deal between Samsung and Hanwha is expected to bring about a cataclysmic change in Korea’s defense industry by making Hanwha the unrivaled leader with a more diversified portfolio.

Of the four Samsung affiliates that the Hanwha Group will acquire, both Samsung Techwin Co. Ltd. and Samsung Thales Co. Ltd., a joint venture with French defense electronics firm Thales, are arms builders. The deal will create a new defense giant, while two of the key players in the lucrative market will disappear.

According to Samsung and Hanwha, Hanwha has recorded 1.184 trillion won ($1.07 billion) in defense sales as of late 2013, while Samsung Techwin had 963.5 billion won and Samsung Thales 617.6 billion won. Combined together, Hanwha, after the acquisition, will have 2.5995 trillion won of sales in the defense industry.

Hanwha’s operating profit was 146.1 billion won, while Samsung Techwin had 96 billion won and Samsung Thales 20.6 billion won. Combined together, the operating profit of Hanwha, after the acquisitions, would be 262.7 billion won based on the 2013 data.

In terms of manufacturing output, Samsung Techwin has been the largest arms builder in the country, while Hanwha was ranked fourth.

As of 2012, Samsung Techwin recorded 1.165 trillion won in manufacturing output, putting it on the top of the list of Korea’s arms producers, according to a Defense Industry White Paper published last year by the Korea Institute of Industrial Economics and Trade. Samsung Thales was ranked at seventh with 510.8 billion won.

Hanwha was ranked fourth with 791.2 billion won, but the acquisition will make it the unrivaled defense giant of the country.

The deal will greatly broaden Hanwha’s portfolio. Its business was centered on ammunitions production and precision guided weapons. Through the acquisition, it will become a comprehensive defense giant by expanding into artillery and engines as well as communications and radar systems.

“For Hanwha, whose strength is ammunitions and guided weapons systems, to prepare for producing defense electronics, we proposed the sale of Samsung Techwin,” an official from Samsung’s Future Strategy Office said.

Samsung Techwin is the manufacturer of the K-9 self-propelled howitzers and engines for a wide range of aircrafts including the light attacker FA-50s. Samsung Thales builds tactical communication systems, radar systems and naval combat systems.

Hanwha will also be able to expand its portfolio into the aerospace industry as it will take over a 10-percent stake of Korea Aerospace Industries that Samsung Techwin owns. Korea Aerospace Industries is the second largest arms producer in Korea.

With the diversified portfolio, Hanwha’s positioning in the global market is also expected to go up.

In the 2012 list of top 100 arms-producing and military services companies in the world excluding China published by the Stockholm International Peace Research Institute, Hanwha barely made it, ranking 100th. Samsung Techwin was ranked 54th, the highest among Korean firms.

Combined sales of Hanwha and Samsung Techwin would be $2.277 billion, elevating Hanwha, after the takeover, to become one of the world’s top 40 arms builders.

BY SER MYO-JA [myoja@joongang.co.kr]

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