Big Coup for CJ Group

Group named priority bidder for Korea Express over rival POSCO-Samsung SDS consortium

CJ Group has been named the priority bidder for Korea Express Co. at a bidding held on June 28, beating the consortium of POSCO-Samsung as announced by the Korea Development Bank, the lead manager of the bidding.
The lead manager said Daewoo Construction and Asiana Airlines, the sellers of majority shares of Korea Express, picked CJ Group based on bidding papers it submitted on June 27. Sources said CJ outbid its rival by bidding more than 200,000 won per share against the 190,000 won per share bid by its only rival.
CEO Lee Kwan-hoon said Korea Express will be a major vehicle for CJ Group's logistics business sector during a media conference held in June at the Korea Journalism Foundation and the group will consider further M&As overseas to pave the way for Korea Express to be a leading global logistics firm. Korea Express is aiming to post 20 trillion won in annual sales in 2020, which would make it the seventh largest global logistics firm.
He refuted rumors that the group might have funding trouble as it needs some 2.2 trillion won to buy 45 percent of the logistics firm's total outstanding shares, saying that there will not be a so-called curse of the winner for the group.
CEO Lee acknowledged that the formation of a consortium between POSCO and Samsung SDS was a factor in boosting the bidding price at the last minute, but denied that the group might have trouble securing funds, adding that the synergy to be created with CJ GLS will lead the company to expand its growth at home and overseas.
Manager Choi Eun-sok of CJ GLS, a logistics affiliate of the group, said Korea Express is strong in transport and stevedoring, while CJ GLS has been in home delivery and overseas operations and the two companies would be able to create great synergy in operations.
He also saw no problems funding the merger, as CJ GLS and CJ CheilJedang would share the funding equally. The sugar refining firm has cash reserves of between 100 billion won and 200 billion won and shares of Samsung Life Insurance valued at from 500 billion won to 600 billion won, depending on market prices. CJ GLS will secure funds through the issuance of new shares valued at 500 billion won and loans totaling 500 billion won. The company also has real estate in Gimpo and Yeungdeungpo in Seoul valued at some 600 billion won.
Director Shin Yong-joon of CJ's financial team said CJ CheilJedang is capable of borrowing 2.5 trillion won based on its current financial conditions. Its total debts stand at 1 trillion won now.
CEO Lee added that the group's surplus cash flow amounts to from 400 billion won to 500 billion won annually and he sees no problem in taking over Korea Express.
However, some stock market sources fear that the takeover price may be too high and could spell trouble for the group in securing the funds.
CJ CheilJedang entered the overseas markets for sugar and MSG in the 1960s and thereafter has continuously promoted processed food exports targeting Koreans living abroad in the United States, Japan and China. In the 1980s, products using nucleotides, lysine and antibiotics as ingredients were added to its global repertoire and, accordingly, CJ CheilJedang gradually increased the scope of its overseas business. In particular, Bio and Pharma were the areas CJ CheilJedang most extensively focused on in its entry into overseas markets. CJ CheilJedang entered the Indonesian market in November 1989 for the purpose of expanding its bioscience business. After securing a stable market for feed, chicken farming, lysine, nucleotides and MSG, CJ CheilJedang then moved to Vietnam, Myanmar and the Philippines in the 1990s. CJ CheilJedang plans to add pharmaceutical production and marketing businesses to its existing feed business in these countries.
The food business, the cornerstone of CJ CheilJedang, is being actively carried out in China and the U.S. In China, local offices are performing various activities related to sales and market development for meat processing, Dashida, food ingredients and food materials. In the world's largest market, the United States, CJ CheilJedang has been actively conducting business activities targeting Korean residents since the mid-1990s. In 2002, processed foods on a scale of 5 million won were sold locally. More recently, CJ CheilJedang has been developing and diversifying Hetbahn and seasoning products to suit the tastes of U.S. consumers and is actively developing the local markets there. nw

Chairman Lee Jae-hyun of CJ Group.

Photo on Courtesy of CJ