Posco Shares Drop on Concern Over Bid for Daewoo Shipbuilding

By Sungwoo Park

Aug. 19 (Bloomberg) -- Posco, Asia's biggest steelmaker by market value, fell to a four-month low in Seoul trading on concern it may overpay for Daewoo Shipbuilding & Marine Engineering Co.

Posco declined as much as 4.2 percent to 454,500 won, the lowest level since April 18. The Pohang-based company traded down 3.4 percent to 458,500 won at 10:38 a.m. in Seoul trading, underperforming a 2.3 percent drop in the benchmark Kospi index.

``A pricey acquisition could be dilutive to Posco's financials'' Goldman Sachs Group, Inc.'s analysts said today in a report. ``Markets generally view such non-core diversifications negatively.''

Korea Development Bank and Korea Asset Management Corp. plan to sell a 50.4 percent stake in Seoul-based Daewoo Shipbuilding by the end of the year. The stake in the world's third-largest shipyard may cost as much as 6 trillion won ($5.7 billion), Lee Jae Won, an analyst at Tong Yang Securities Inc., said today.

The stake is worth 3.72 trillion won at yesterday's close.

The likelihood that Posco will buy the stake increased after Doosan Group, the owner of South Korea's largest power equipment maker, drop out of the auction, Goldman said.

Posco ``is looking for synergies in the form of captive customers for its plates, but the economic justifications look weak'' since they sell more steel to carmakers than shipbuilders, Goldman's analysts Rajeev Das and Shin Won Yoon said.

UBS AG also said in a report dated yesterday that Doosan's withdrawal is negative as the market perception of Posco winning the bid has increased.

To contact the reporter on this story: Sungwoo Park in Seoul at spark47@bloomberg.net.