Doosan Group is under intense scrutiny as it struggles to win investor confidence in its proposed governance overhaul. This comes amid growing speculation that the plan could collapse due to discrepancies between the proposed share purchase warrant prices and the company’s current stock prices. The situation has been worsened by regulatory pressures and increasing dissatisfaction among investors, leading to a dip in the stock prices of several Doosan subsidiaries.

On Aug.19, shares of Doosan Enerbility, Doosan Bobcat, and Doosan Robotics all experienced declines. According to the Korea Exchange, Doosan Enerbility’s stock closed at 18,230 won, down 2.77 percent from the previous trading day. Similarly, Doosan Bobcat and Doosan Robotics saw their shares fall by 2.21 percent and 1.75 percent, respectively. The declines came on the heels of Doosan’s submission of its second revised securities filing to South Korea's Financial Supervisory Service the previous Friday, Aug. 16, a move mandated by the regulatory body following concerns over the initial plan.

Regulatory pushback

Doosan’s plan for the governance overhaul, announced on July 11, is to make Doosan Robotics a wholly-owned subsidiary of Doosan Bobcat. The plan involves a share swap: for every Doosan Bobcat share, investors would receive 0.63 shares of Doosan Robotics. On paper, it sounds like a strategic move aimed at boosting collaboration between the two companies, with Robotics positioned as a key player in Doosan’s future.

But not everyone is convinced. Many investors see the plan as overly optimistic -- if not misguided. The main issue is that despite being hailed as a future growth engine, Doosan Robotics is still a loss-making venture. Meanwhile, Doosan Bobcat is a steady earner, and critics argue that it’s being undervalued in this deal, effectively shifting value away from shareholders to the founding family, who holds significant controlling stakes in Doosan.

The backlash has been loud enough to catch the attention of the Financial Supervisory Service. Lee Bok-hyun, the FSS governor, called out Doosan for what he sees as a questionable governance practice that might not adequately protect the interests of minority shareholders. Lee has even suggested that the FSS would require repeated revisions to Doosan’s filings until they provide enough transparency and justification for the restructuring.

Consequently, Doosan submitted two revised filings on Aug. 6 and Aug. 16. Despite these efforts, the company has struggled to regain investor trust, as reflected in the continued decline in share prices. The drop in stock value is particularly problematic for the governance overhaul, as the current share prices of Doosan Enerbility, Doosan Bobcat, and Doosan Robotics are all below the exercise prices of the proposed share purchase rights.

A high-stakes gamble

If Doosan’s stock prices do not rebound, the entire governance restructuring could be at risk. Existing shareholders, even those who might otherwise support the overhaul, may be compelled to vote against it simply to avoid financial losses. Under the current circumstances, shareholders could exercise their rights to demand the buyback of their shares at a price higher than the market value, a move that could also significantly strain Doosan’s finances.

Doosan has already set strict limits on the total amount it is willing to spend on share buybacks: 600 billion won for Doosan Enerbility, 1.5 trillion won for Doosan Bobcat, and 500 billion won for Doosan Robotics. These amounts represent 4.5 percent, 29.7 percent, and 9.6 percent of each entity's total number of shares, respectively. Should shareholder buyback demands exceed these limits, Doosan has indicated that it would reconsider the entire reorganization process.

Doosan Enerbility plays a particularly critical role in the success or failure of the reorganization. With a buyback limit of just 4.5 percent of its total shares, the company is especially vulnerable to opposition from key shareholders. Notably, the National Pension Service, which holds a 6.8 percent stake in Doosan Enerbility, could single-handedly thwart the plan if it decides to oppose the reorganization.

Shareholders of Doosan Enerbility will have the opportunity to formally express their opposition to the plan between Sept. 10 and Sept. 24. However, only shares acquired before the July 11 announcement will be eligible for buyback requests.

Resistance among Doosan Bobcat shareholders also poses a significant risk. While Doosan Enerbility owns 46 percent of Bobcat, other shareholders include foreign investors at 39 percent and the National Pension Service at 7 percent. These shareholders have expressed concerns that the share swap is effectively forcing them into a delisting. “Doosan's business restructuring might drive away overseas investors who had hoped for Doosan Bobcat's stable profitability and dividends,” said Lee Han-gyeol, an analyst at Kiwoom Securities.

Another analyst from a Korean securities firm, who wished to remain anonymous, suggested that the situation could deteriorate to the point where a significant number of Doosan Bobcat shareholders exercise their buyback rights, potentially causing the merger to collapse. “I think the total amount of Doosan Bobcat shareholder buyback rights could exceed 1.5 trillion won,” the analyst said.

Facing mounting pressure, Doosan Group is scrambling to save its governance overhaul. “If the Financial Supervisory Service does not approve our securities report, we simply cannot proceed with the reorganization. We’re making efforts to boost the stock price by sending letters to shareholders and improving communication. There is still time until Oct. 15 for shareholders to exercise their rights, and we’re doing everything possible to address their concerns,” said a Doosan Group official.