Doosan Group has suggested that it may enter negotiations with potential buyers other than shortlisted bidders on the sale of Doosan Infracore, making it even more likely the deal will be delayed as the firm tries to erase concerns over a lawsuit against a Chinese unit.

The group held its final round of bidding for Doosan Infracore on Tuesday (November 24) and began negotiations with potential buyers, industry sources said on Friday (November 27), but some bidders were not expected to submit binding final offers due to the legal action against Doosan Infracore China Co (DICC), a subsidiary of Doosan Infracore.

In response, Doosan Group will shield investors when Doosan Infracore is split off by using a strategy similar to that employed when Doosan Heavy Industries & Construction sold Doosan Engine to a consortium of Socius Private Equity and Well to Sea Investment in 2018. Doosan Heavy Industries spun off the investment business from Doosan Engine into a new company, merged with Doosan Heavy Industries, and sold the operations business.

In this instance Doosan Group will set up an investment company of Doosan Infracore and Doosan Heavy Industries, with Doosan Bobcat, a key subsidiary of Doosan Infracore, becoming a subsidiary of Doosan Heavy Industries.

Doosan Group reportedly wants the investment company to take care of almost 1 trillion won ($900 million) of contingent liabilities related to DICC. However, there won’t be a big difference for existing shareholders as they will have shares of both investment and operations companies under the spin-off.

Industry watchers said shareholders of Doosan Bobcat may be worried about a decrease in Doosan Bobcat’s enterprise value, because contingent liabilities of Doosan Bobcat and Doosan Infracore will be combined through the process.

“According to Doosan Group’s spin-off plan, Doosan Bobcat will merge with contingent liabilities,” said an industry source, adding, “Shareholders may oppose the plan that (Bobcat) will have to shoulder 1 trillion won worth of debts.”

The merger ratio for the investment company and Doosan Heavy Industries will be another issue. Shareholders of Doosan Heavy Industries and Doosan Bobcat could have a conflict of interest on the valuation of the investment company carrying DICC’s contingent liabilities.

Doosan Group is likely to sign a stock purchase agreement with a preferred bidder for Doosan Infracore and carry out the spin-off procedures until the deal closes. The spin-off process normally takes 2 to 3 months. (Reporting by Hye-ran Kim and Byung-yoon Kim)