Doosan Group is expected to grant exclusive negotiation rights to one of two shortlisted bidders for Doosan Co Ltd’s hydraulic components business unit Doosan Corporation Mottrol as early as next week. 

Talks are being held directly with Morgan Stanley Private Equity (PE) and the consortium of Socius Advisors and Well to Sea Investment, after Doosan and its creditors chose not to hold a progressive bidding, sources said on Wednesday (August 12).

The shortlisted bidders are putting a value estimate on Doosan Corporation Mottrol and drawing up funding plans as they seek a competitive edge in the race. Sources said both were keen to demonstrate the relative strengths of their packages. 

Socius Advisors and Well to Sea Investment have hired Woori Bank to arrange acquisition financing. It is the second time they have linked up, after acquiring a controlling stake in HSD Engine, formerly Doosan Engine, in 2018.

Morgan Stanley PE has a good understanding of the target, as some of its officials are from Doosan Group. However, it will be at a disadvantage as a foreign buyer because Doosan Corporation Mottrol has some defense operations and the deal will be subject to approval from the South Korean Ministry of Trade, Industry and Energy under national security laws.

Some potential buyers had asked for the defense division to be excluded from the sale, but Doosan Group decided to  offload the entire business unit. Valued at about 50 billion won ($42 million), the division accounts for only a small part of the total transaction value, which is estimated at 400 billion won, though it could determine whether a deal is struck. 

At the suggestion of Doosan Group, Morgan Stanley PE is joining with a local partner to manage Doosan Corporation Mottrol, as there is no precedent for South Korea selling a company with defense operations to a foreign buyer. Chinese construction machinery manufacturer XCMG Group had been considered one of the strongest candidates among strategic investors, but failed to make the shortlist.

Doosan Corporation Mottrol manufactures a wide range of hydraulic components, such as travel and swing devices, pumps and main control valves. It has a customer base in domestic markets and across China, India, North America and Europe.

Doosan Group plans to split off Doosan Corporation Mottrol and make it a wholly-owned subsidiary of Doosan Co Ltd, with the sale being completed by the end of this year. (Reporting by Ar-rum Rho and Ik-hwan Choi)