The Wall Street Journal-20080117-South Korea-s Attitude Shifts on Deals
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South Korea's Attitude Shifts on Deals
SEOUL, South Korea -- The investment by South Korea's government investment fund in Merrill Lynch & Co. is the latest sign of a new attitude that is percolating in Korean companies: It is good to be making overseas acquisitions.
South Korean businesses and executives have long focused on organic growth. For years, government leaders with a nationalist desire encouraged them to keep their money at home. More recently, executives worried that language and cultural differences would make international deals difficult.
That is changing. In July, Doosan Infracore Co. made the biggest international acquisition by a South Korean company to date, spending $4.9 billion on the Bobcat construction-vehicle business of Ingersoll- Rand Co. of the U.S.
Among other big moves last year, shipbuilder STX Group tentatively agreed to buy a Norwegian shipbuilder for $800 million, and South Korea's military pension fund became the largest shareholder in Thames Water, a British utility.
In November, South Korea's leading cellular carrier, SK Telecom Co., unsuccessfully attempted an even bigger deal. It joined a U.S. private-investment firm in a $5 billion offer for Sprint Nextel Corp., a major wireless company in the U.S. Sprint Nextel rejected the offer.
"We do see more Korean companies who are open to overseas acquisitions as a means to expand their business," says Minsub Chung, vice president of global investment banking at Tong Yang Investment Bank in Seoul. "The chance to have an immediate and established presence in a foreign market is certainly attractive."
South Korea is still a small player in global deal-making. The nation's companies spent $14 billion last year on acquisitions overseas, according to Thomson Financial. But while that is a small amount on the world scene, it is three times what they spent on such deals in 2006.
And most of the biggest deals involving South Korean businesses over the next few years are likely to remain inward-focused. That is because the government is planning to privatize several large banks and companies that it has controlled since the country's financial crisis a decade ago. Some are valued at more than $10 billion, and the prospect of those deals has led to a hiring spree at investment banks in Seoul.
But several bankers say some of South Korea's largest companies now have units in their finance divisions to evaluate international acquisitions. Many firms, like SK Telecom and Samsung Electronics Co., have built huge piles of cash that investors want to see put to work.
"This is kind of the opening-up of the financial market of Korea," says Gene Yoon, chairman of closely held GLBH, the maker of Fila sportswear. Backed by Korean banks, he acquired the European sports- fashion maker in April, a rare case of a Korean business buying an existing global brand outright.
Mr. Yoon was chief of Fila's Korea unit and had spent 25 years working with the company. He said he felt no hesitation when the opportunity arose to acquire Fila. "I knew a lot of things about the operation," he says.
Such confidence doesn't come easily to most Korean executives, even at the biggest firms. Over the past two years, many top executives have told reporters they are considering or studying international deals, but few made them.
