Doosan Group’s recently announced governance restructuring plan has divided investors, raising questions about its viability. Central to the plan, unveiled on July 11, is the proposal to make Doosan Bobcat a wholly-owned subsidiary of Doosan Robotics, which has sparked debate over the fairness of the merger ratio based on the stock prices of both companies.

Doosan Bobcat, a significant revenue generator for the group, stands at the heart of this controversy. Shareholders of Bobcat are concerned about the company becoming a subsidiary of the less profitable Doosan Robotics. They argue that this move undermines the interests of minority shareholders.

Meanwhile, investors in Doosan Robotics are optimistic, anticipating that acquiring Doosan Bobcat will stabilize Doosan Robotics financially and create business synergy, particularly in the North American market.

Strategic restructuring

Doosan's restructuring aims to streamline its core businesses into three segments: clean energy, smart machines, and semiconductors and advanced materials, to enhance synergy within each segment.

A major focus is on the smart machines segment, where Doosan Bobcat will undergo a spin-off merger to become a wholly-owned subsidiary of Doosan Robotics under the group's strategy to transform Bobcat into a reliable cash generator for the rapidly growing, capital-intensive Robotics.

“We plan to eliminate redundant investments between the two companies and boost synergy by collaborating on R&D projects, like AI-driven motion control, advanced vision recognition, and cutting-edge autonomous driving technologies,” said a Doosan official.

Spin-off merger

This restructuring process involves splitting Doosan Enerbility into two entities: a business entity and a new investment entity, with a split ratio of 1 to 0.24. The new investment entity, which will hold 46 percent of Doosan Bobcat, will merge with Doosan Robotics. Meanwhile, the business entity will continue operating under Doosan Enerbility. The remaining 54 percent of Doosan Bobcat, held by minority shareholders, will be exchanged for new shares issued by Doosan Robotics. this will result in Doosan Robotics acquiring full ownership of Bobcat, which will subsequently be delisted.

The group said that the reshuffle will also allow Doosan Enerbility to concentrate more on its core energy businesses, improving its financial structure by reducing borrowings by approximately 1.2 trillion won ($870 million).

The restructuring will also enhance the control of the group’s owner family over Doosan Bobcat. Post-reorganization, the holding company's stake in Doosan Robotics will drop from 68.2 percent to 42.3 percent, but its control over Doosan Bobcat will increase from 13.8 percent to 42 percent.

As of the end of the first quarter, Doosan Group Chairman Park Jung-won held a 7.64 percent stake in Doosan. Thirty related parties, including his brother, Vice Chairman Park Ji-won with a 5.5 percent stake, along with relatives, non-profit organizations, and registered executives, collectively held a 38.4 percent stake.

Unfair share-swap ratio?

A major point of contention in this process is the proposed exchange ratio of 1 to 0.63 between Robotics and Bobcat. On the announcement date, both companies had similar market capitalizations of approximately 5 trillion won ($3.6 billion). The reference prices per share were 80,114 won for Robotics and 50,612 won for Bobcat, suggesting that one share of Robotics was equivalent to 0.63 shares of Bobcat.

Critics argue that basing the exchange ratio on current market prices in this way is unfair. Doosan Bobcat is a well-established company with a net worth of nearly 6 trillion won and an annual operating profit of 1 trillion won. In stark contrast, Doosan Robotics has a net worth of only 400 billion won and is currently losing 10 billion won annually. Despite similar market capitalizations, Bobcat is severely undervalued at a price-to-book ratio of 0.87, whereas Robotics is highly overvalued at a PBR of 12.6.

The primary issue is that the merger ratio can be set according to market price under Korea’s capital market law, and is unable to reflect a company’s intrinsic value, such as its profit-making potential. This has led to similar controversies in past mergers, like the merger between Samsung C&T and Cheil Industries in 2015.

Industry experts have voiced concerns over the fairness of Doosan’s merger.

“It appears that Doosan Group has leveraged the current system to favor Doosan Robotics, where Doosan’s largest shareholder stake lies, effectively depriving ordinary shareholders of Doosan Bobcat from benefiting from the company’s growth,” said Lee Nam-woo, chairman of the Korea Corporate Governance Forum.

Stocks fluctuating

Due to the uncertainty surrounding the restructuring's impact, the share prices of related companies have experienced significant volatility.

On July 15, Doosan Robotics shares plummeted by 11.54 percent to close at 93,500 won, while Doosan Bobcat shares fell by 10.26 percent. Doosan Enerbility shares rose by 3.35 percent, and Doosan Corp. shares increased by 1.05 percent.

This contrasts with the stock movements on July 12, the day after the restructuring was announced when Robotics surged by 23.92 percent, and Bobcat climbed by 5 percent. Doosan Enerbility and Doosan Corp. saw their shares drop by 4.35 percent and 9.11 percent, respectively.

Eyes on Enerbility

The critical factor in finalizing the deal will be its approval at Doosan Enerbility’s upcoming shareholder meeting on Sep. 25. The decision of Doosan Enerbility shareholders is pivotal for the three Doosan Group companies involved.

“Since Doosan holds significant stakes in Doosan Robotics and Doosan Bobcat, with 68.2 percent and 46.1 percent respectively, the share exchange should pass smoothly. However, Doosan only owns 30.7 percent of Doosan Enerbility. If other shareholders oppose the exchange, the governance overhaul might not go as planned,” said analyst Ko Gyeong-beom from Yuanta Securities.