Doosan Group is widely expected to choose Morgan Stanley Private Equity as preferred bidder for Doosan Co Ltd’s hydraulic components business unit Doosan Corporation Mottrol, despite potential regulatory issues over its defense operations.
Market insiders said Doosan Group has also entered into exclusive negotiations with the other shortlisted bidder, the consortium of Socius Advisors and Well to Sea Investment, but Morgan Stanley PE is likely to get the final nod.
The deal will be subject to approval by the Ministry of Trade, Industry and Energy under national security laws, as Morgan Stanley PE is an overseas-based company. Defense business accounts for about 25% of Doosan Corporation Mottrol’s total sales, and there is no precedent for South Korea selling a firm with defense operations to a foreign financial investor.
Doosan Group met with the ministry and the Defense Acquisition Program Administration to discuss its assessment of the candidates before making a decision, sources said on Wednesday (August 19). Morgan Stanley PE has reportedly contacted the authority handling defense business approvals through its own advisors to explain the low risks of a technology leakage.
The approval process could determine whether a deal is struck, as other strategic investors, including China-based XCMG Group, failed to make the shortlist due to factors other than pricing.
Doosan Group’s unprecedented move in drawing up the shortlist twice highlights this issue. Sources said that Morgan Stanley PE outbid other potential buyers in the final round of bidding on the basis of quantitative criteria, but Doosan was unable to make a final decision because of the security aspects.
“The seller has decided to sell Doosan Corporation Mottrol including its defense division, but it is keeping in mind that it might have to sell the division separately in case Morgan Stanley PE fails to receive approval from the authority,” said an industry source.
If Doosan Group selects Morgan Stanley PE as the preferred bidder, the deal is likely to mirror the Kumho Tire deal in 2018, industry insiders said. A group of creditors led by Korea Development Bank sold the company to Chinese firm Doublestar, while its defense business was sold separately to local tire manufacturer Hung-A Co Ltd. (Reporting by Ar-rum Rho)