Korean steel producer, POSCO (PKX) recently submitted a preliminary bid to acquire a controlling share in South Korea’s top logistics company, Korea Express Co Ltd, according to sources.
The deal, worth $1.5 billion, has also attracted biddings from CJ Group and Lotte Group. Currently, these shares are held by Asiana Airlines Inc. and Daewoo Engineering & Construction Co Ltd.
Final bids will be accepted until May 13 while a preferred bidder will be chosen on May 16. POSCO by acquiring the 37.6% stake in the Korea Express aims at reducing its logistics costs.
POSCO’s focus on regional diversification, self-sufficiency in raw materials and higher proportion of value-added products in its product mix are encouraging attributes. Recently, the company’s much awaited $12 billion Orissa project, involving an integrated steel plant with 12 billion tons of annual capacity and a port in Orissa, received conditional approval.
For fiscal year 2011, POSCO expects consolidated revenue of around KRW 66 trillion while the company’s revenue is targeted to reach KRW 36 trillion. It is anticipated that product sales would amount to a total 34 of million tons and crude steel production would yield 36 million tons. Consolidated investments are likely to be KRW 9.8 trillion with the company’s investments totaling KRW 7.3 trillion. The company targets to save costs amounting to KRW 800 billion.
However, rising competition and higher raw material costs remain the prime causes of concern. The company faces stiff competition from Arcelor Mittal (MT) and Nippon Steel Corp.
We currently maintain a Neutral recommendation on the stock.
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