Tuesday, May 26, 2009

Korean M&A Deals: Shedding Core Assets + Weak Won = Value

A May 20th Financial Times Article on Korean M&A is reasonably upbeat on the potential for further Korean deals and quotes a friend, Paul Kang, an investment banker who focuses on Korean M&A deals. Among the article’s observations (click the blog title above for the article and broader Korea report) are the following:

  • Korean Companies Shed Non-Core Assets. As is true in the US and elsewhere, until a recovery gathers strength, some Korean companies are exploring the potential sale of non-core assets to further finance and strengthen their core businesses. Goldman’s head of Korean investment banking indicates that this will help drive both domestic as well as cross-border Korean deals, and the article reports that many expect Korean M&A to become more active in the second half of 2009 as the push for disposal of non-core assets gathers momentum.
  • Actual Increase in Numbers of 2009 Deals. What do the numbers show? Korean M&A deals increased from 333 in the first quarter of 2008 to 406 in the first quarter of 2009, although their combined value fell from $14.1bn to $12.4bn. Not bad in a rough environment.
  • Purchase of Prominent Korean Beer Company - An Example. As a recent cross-border deal example, Kohlberg Kravis Roberts agreed to buy Oriental Brewery from Anheuser-Busch InBev for $1.8bn. This will be the largest leveraged buy-out in Asia in the past two years. Who hasn’t enjoyed a cold “OB” during a visit to Seoul?
  • A Weak Won Enhances Value to Foreign Investors. The Korean won has fallen about 18 per cent against the dollar in the past year, making Korean assets cheaper for foreign investors, and the currency play alone is creating deal opportunities as it did during the 1997 – 1998 Asian financial crisis.
However, Paul Kang, a former Goldman banker and something of a realist, is skeptical that the outstanding Korean opportunities will generate significant foreign buying given the global uncertainties impacting potential buyers.

That may be true, and too bad for the hesitant who are still kicking themselves for missing out on Asian financial crisis opportunities.

The image is of Namdaemun gate in Seoul, Korea's National Treasure #1, photo credit to Charles Chan.

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