Korean conglomerate accentuates the discount

Woongjin Co

30/10/2018 02:36

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Jeffrey Goldfarb
    HONG KONG, Oct 30 (Reuters Breakingviews) - The conglomerate
discount is alive and well in South Korea. Nearly six years
after selling a controlling stake in appliance rental business
Coway  021240.KS  to buyout shop MBK Partners, Woongjin
 016880.KS  – whose empire stretches from skin care to solar
cells – will buy it back with a partner for $1.5 billion. News
that control would return to the original steward wiped out a
quarter of Coway’s value.
    Woongjin lost Coway in the first place because it
overextended itself. Its construction business went bust in
2012, and to help shore up the broader group’s finances founder
Yoon Seok-keum parted with his crown jewel. MBK paid 50,000 won
a share, or about $1.1 billion, for a 31 percent stake in Coway
that included management rights.
    Between 2013 and 2017, the publicly traded company’s
operating income grew by more than 40 percent and the share
price doubled. After offloading slugs of its stock along the
way, MBK has agreed to sell its remaining 22 percent stake to
Woongjin’s educational book division, Woongjin Thinkbig
 095720.KS , and buyout shop STIC Investments, for 103,000 won a
share. Yoon vowed on Monday to make a success of the company he
started back in 1989 with an army of door-to-door salespeople
peddling water purifiers and bidets. Investors, however, are not
so sure.
    Although Woongjin’s shares jumped nearly 8 percent,
Thinkbig’s fell 6 percent. And despite the premium being paid to
MBK, Coway’s tumbled 25 percent, erasing some $1.3 billion of
market capitalisation – or nearly the entire value of the deal –
on the same day that Korean financial authorities said the
government would try to prop up the stock market. Although
Woongjin says there will be no change to the dividend policy,
some of the share-price collapse may reflect concerns it will be
less generous than it was under MBK. The slide also suggests
investors lack confidence in the new controlling owner’s
capital-allocation capabilities.
    Moon Jae-in was elected Korea’s president last year in part
on promises to strengthen rules governing the country’s
powerful, diversified and family-led enterprises known as
chaebol. A weakening economy, though, means the tough talk may
lead to less action than originally expected. The disappointment
of Coway’s investors at the prospect of Woongjin’s leadership
indicates that subduing sprawl should remain on the agenda.
    On Twitter https://twitter.com/jgfarb
    
    CONTEXT NEWS
    - Korean conglomerate Woongjin said on Oct. 29 it would buy
back control of appliance maker Coway from MBK Partners for
about 1.7 trillion won ($1.5 billion) after having sold a 31
percent stake to the private equity firm in January 2013.
    - Together with buyout firm STIC Investments, education
division Woongjin Thinkbig will pay 103,000 won a share for a 22
percent stake that includes management rights. MBK bought 31
percent of the company for 1.2 trillion won. Shares of Coway,
which rents water and air filters, have nearly doubled in price
under MBK’s stewardship.
    - Woongjin shares closed up 7.8 percent at 2,570 won while
those of Woongjin Thinkbig were down 6.1 percent to 4,085 won
apiece. Coway shares fell 25 percent to 63,000 won.
    - For previous columns by the author, Reuters customers can
click on  GOLDFARB/  
    - SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: http://bit.ly/BVsubscribe

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Coway statement - Korean    https://dart.fss.or.kr/dsaf001/main.do?rcpNo=20181029000001&dcmNo=6361798&keyword=코웨이
Korea Herald story    http://www.koreaherald.com/view.php?ud=20181029000714
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Richard Beales and Katrina Hamlin)
 ((jeffrey.goldfarb@thomsonreuters.com; Reuters Messaging:
jeffrey.goldfarb.thomsonreuters.com@reuters.net))