The mega deal between Samsung Group and Hanwha Group that the former sold its four defense and petrochemical units to the latter in late 2014 surprised the market, even sparking concerns over the financial health of Hanhwa and sowing doubts about Samsung heir apparent’s management capability. But now about a year after the deal was clinched, most market experts agree that it was a win-win deal for the two large Korean conglomerates.
Hanwha Group already collected most of its money spent on the purchase of Samsung Techwin, Samsung Thales, Samsung General Chemicals and Samsung Total in nearly a year. In November 2014, it took over them for about 2 trillion won ($1.63 billion) in total. Samsung Group’s move to focus on select industries led by Samsung Electronics Co. Vice Chairman Jay Y. Lee was highly regarded by overseas investors. With the proceeds from the deal, Samsung is expected to acquire overseas companies that could help reinforce its key businesses and nurture new growth engines.
According to industry sources on Thursday, Samsung Total now renamed into Hanwha Total is likely to report more than 1 trillion won in earnings before interest, taxes, depreciation and amortization (EBITDA), a leading measure of a company`s financial performance. Hanwha Group spent 1.03 trillion won on the purchase of Samsung Total and Samsung General Chemicals. Hanwha Total posted 278.6 billion won in operating profit for the July-September period and 570.2 billion won for the first three quarters. Given Korea’s petrochemical industry did better in the fourth quarter versus the third quarter, Hanwha Total’s full-year operating income is estimated to have topped 800 billion won. That’s higher than the combined operating income of Hanwha Group units in 2014.
Hanwha Techwin also achieved fruitful results. Hanwha Group acquired Samsung Techwin and Samsung Thales for 823.2 billion won. But Hanwha Techwin recently earned 441.8 billion won and 279.6 billion won by selling its stake in Hanwha General Chemicals and Korea Aerospace Industries (KAI), respectively. Most of money spent on the purchase was collected through the selloff of Techwin’s equity holdings.
Hanwha Group with such large cash reserves aims to become a leading defense company through additional M&A deals. Hanwha Techwin is already regarded as a potential buyer of Doosan DST, which has been put on sale in the domestic defense market. It is also considering buying overseas defense companies.
“We have a long-term vision to become a global defense company through M&As that could create synergies with Hanwha Techwin, Hanwha Thales and Hanwha Corporation’s defense business,” an unnamed Hanwha Group official said. The industry expects Hanwha Group will eventually bid for Korea Aerospace Industries Ltd. (KAI), becoming a large defense company valued at more than 10 trillion won.
It was a good deal for Samsung Group as well, according to market experts. “Global investors are giving favorable views to Samsung Group’s selloff of defense and chemical units to Hanwha Group and Lotte Group, a deal to transform Samsung Group based on its two pillars of electronics and finance," said an unnamed investment banking industry official.
Samsung Group is reportedly moving forward with plans to buy promising companies in the global M&A market this year. Samsung Group already secured more than 4 trillion won in cash by selling businesses to Hanwha and Lotte.
By Han Woo-ram
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