Kamco has mandated CSFB to sell its stake in Daewoo Heavy Industries & Machinery, a company with an enterprise value of around $1.1 billion.
Kamco owns 35.6% of the company, whose businesses include making tanks, forklift trucks and machine tools. It has a 35% market share in Korea and is number one in excavators, forklift trucks and machine tools. However, what buyers may be most excited by (and thus pay a strategic premium for) is its position in fast-growing China, where it has a 20% market share in the construction equipment business and has three factories.
CSFB has been hired by Kamco to first do a feasability study and then execute the plan. The feasability study's first suggestion is likely to be the splitting off of the defence business, if only because of the issues relating to foreign ownership limits in the defence industry (which are capped at 49%). The defence business is thus likely to be sold to a domestic buyer, with the list of interested buyers probably including Hyundai Heavy, Samsung Heavy, Korea Aerospace and Rotem.
Once this is done the remainder of the business could be attractive to either strategic investors (eg Caterpillar, Komatsu, or Ingersoll-Rand) or to financial buyers (such as private equity funds like Carlyle, CVC, 3i). Private equity funds remain flush with cash and are thus likely to be keen bidders for the asset, which over time they could break up and sell to the most relevant strategic buyer.
The buyers will likely want control - which in Korea means gaining 67%. If they buy Kamco and KDB's stake in one slug they will get 57.9%. Since the company is listed it will probably be necessary to make a general offer for the rest.
With an asset size of $1.9 billion, this is one of Kamco's largest and most attractive assets and it is sure to demand a decent valuation for it. And while an outright sale of the non-defence business looks the most likely option, it is also possible that should markets pick up it will consider selling the stake as a GDR.
