The Motley Fool Previous Page

A Steelmaking Giant Wants Into the Deepwater Game

Christopher Barker
August 29, 2008

While Enron will forever remain the American archetype of corporate malfeasance, in South Korea that dubious distinction goes to Daewoo.

Following the dramatic implosion of the Daewoo corporate empire in 1999, which culminated in founder Kim Woo-Jung's 2006 imprisonment on charges of fraud and embezzlement, the shipbuilding segment of the conglomerate was spun off as a separate, state-controlled entity. Nine years later, South Korea is ready to return the world's third-largest shipbuilder to the private sector, and Asia's third-largest steelmaker is intent on offering the highest bid.

POSCO (NYSE: PKX  ) has been on a growth-focused tear lately. Following ArcelorMittal's (NYSE: MT  ) lead, the company has made major strategic upstream investments in companies like Australia's Macarthur Coal to secure critical resources. To expand production, the company is building a steel mill in Vietnam and recently obtained permission to proceed with a $12 billion steel plant project in India. By bidding for Daewoo Shipbuilding and Marine Engineering (DSME), POSCO forges a cunningly bold move downstream to become its own end-user.

POSCO is already the leading supplier of steel plates to South Korea's bustling shipbuilding industry, and views the purchase of DSME as necessary for the company's growth. To help silence critics of the move, the company has signed a letter of intent to acquire iron ore, steel mill, and shipbuilding assets from an unidentified company in the Ukraine