Doosan Group’s recent corporate governance reorganization plan has been stirring controversy. The plan involves separating Doosan Bobcat from Doosan Enerbility, formerly Doosan Heavy Industries & Construction, and making it a wholly owned subsidiary of Doosan Robotics. Doosan Bobcat, widely considered one of the group’s key cash cows, is set to be placed under Doosan Robotics just three years after being transferred from Doosan Infracore to then Doosan Heavy Industries in 2021.
While Doosan claims the purpose of this reorganization is to “enhance synergies between similar businesses,” critics believe the group has other motives. The driving force behind the restructuring is turning the cash-generating Doosan Bobcat into a wholly owned subsidiary of Doosan Robotics, a company with a large market capitalization but currently lacking in profitability. This move is expected to improve the financial structure of Doosan Robotics and draw substantial dividend funds from Doosan Bobcat’s coffers.
Some critics have raised issues with the exchange ratio between Doosan Robotics and Doosan Bobcat being set based on current market prices. Just before the announcement of the spin-off, both companies had similar market capitalizations in the low 5 trillion won ($3.6 billion) range. But investment banking industry insiders argue that this valuation does not accurately reflect the true value of the deal. Doosan Bobcat is a blue-chip company with an annual revenue of 1 trillion won, whereas Doosan Robotics is currently operating at a loss.
Doosan Group plans to split Doosan Enerbility into a business entity and a new investment entity with a split ratio of 1:0.24 and then merge the new investment entity into Doosan Robotics, according to sources on July 15. The business entity will remain as Doosan Enerbility and continue its original operations, while the new investment entity will hold a 46% stake in Doosan Bobcat and merge with Doosan Robotics.
The remaining 54% stake in Doosan Bobcat, held by minority shareholders, will be exchanged for new shares to be issued by Doosan Robotics in the future. This means Doosan Robotics will acquire 100% of Bobcat, making it a wholly-owned subsidiary. Consequently, Bobcat will be delisted.
The current controversy centers on the exchange ratio of 1:0.63 between Doosan Robotics and Doosan Bobcat. When the reorganization plan was announced on July 11, the market capitalizations of both companies were similar, in the low 5 trillion won range. The reference prices per share were 80,114 won for Robotics and 50,612 won for Bobcat, leading to the conclusion that one share of Robotics was equivalent to 0.63 shares of Bobcat.
Some industry insiders argue that it is unreasonable to set the exchange ratio based on the market prices of Robotics and Bobcat. Doosan Bobcat is a well-established company with an annual operating profit of 1 trillion won and nearly 6 trillion won in net assets. In contrast, Doosan Robotics is operating at a loss of about 10 billion won, with net assets amounting to only 400 billion won.
Although Bobcat and Robotics have similar market capitalizations, around 5 trillion won, their price-to-book ratios are vastly different, at 0.87 times and 12.6 times, respectively. Setting the merger ratio based on stock price rather than net assets results in Bobcat’s undervalued shareholders losing out relative to Robotics’ shareholders, whose stock is considered overvalued.
Bobcat shareholders have even raised suspicions that Doosan Group has been intentionally suppressing Bobcat’s stock price. Bobcat’s shareholder returns have been minimal, which has been perceived as a factor hindering stock prices from rising. Last year, Doosan Bobcat’s dividend payout ratio was only 17%, far below the average payout ratio of stock market-listed companies (40%).
