South Korea's POSCO moved closer to buying Daewoo International for $3 billion in its biggest acquisition to date, as the world's No 4 steelmaker looks to secure raw materials and boost overseas sales.
But it is offering a higher-than-expected premium in a volatile market, and may struggle to find synergies.
“I don't see a compelling synergy between the two," said Kim Kang-oh, an analyst at Prudential Investment & Securities. "I'd hoped POSCO would focus more on steelmaking and pursued a firm directly related to it, maybe an iron ore or coal company."
Kim also noted POSCO's reported 3.4 trillion won bid was more than 40 per cent above Daewoo's current value, well above the 30 per cent premium the market had expected.
South Korea's Public Fund Oversight Committee said POSCO had been picked over retail-focused Lotte Group as preferred buyer for a 68 per cent stake in Daewoo, the country's biggest trading firm. A source said that POSCO bid just above 3.4 trillion won, while Lotte offered less than 3.3 trillion won.
Buying Daewoo would give POSCO, which is almost entirely dependent on imported iron ore and coking coal, big resource assets such as an 8 trillion won gas development in Myanmar, a nickel project in Madagascar and coal projects in Australia.