beyondbrics

By Tae Jin Park of mergermarket

Foreign acquisitions by Iranian companies are the rarest of M&A beasts. But Iranian white-goods distributor Entekhab Industrial is set to buy South Korea’s troubled Daewoo Electronics for $520m. The move is likely to raise eyebrows in the US, where Iran’s foreign trade is viewed with suspicion.

However, for Daewoo’s creditors, Entekhab’s arrival offers a welcome exit – eleven years, three failed purchase attempts and 1,500 employee redundancies after the Daewoo conglomerate collapsed under the weight of its debts. According to mergermarket data, the deal is the first since at least 2004 where a Middle Eastern company has bought a Korean counterpart.

Despite its domestic turmoil, Daewoo has remained a premium brand in Middle East, and Entekhab, the major distributor of its Daewoo products in the Middle East, hopes to increase sales in Turkey, north Africa, and eastern Europe.

The deal was announced by Daewoo’s leading creditor, Woori Bank, on Monday, subject to the payment of the purchase price. Three previous purchase negotiations for Daewoo have failed – one by India’s Videocon Industries and US-based private equity Ripplewood foundered amid a payment dispute, while another by the private equity arm of Morgan Stanley was apparently undermined by union demands.

The search for a buyer resumed earlier this year, and Entekhab, the main distributor of Daewoo appliances in the Middle East since 2008, was chosen as the preferred bidder in April. Sweden’s Electrolux, which was named as alternative bidder, subsequently looked elsewhere for exposure to the Middle East: it announced last month a $480m deal for an Egyptian white goods manufacturer,

Entekhab’s purchase price is well below the $750m price that Videocon and Ripplewood had agreed to pay before the financial crisis, but above the $265m-$450m range suggested by local media in March. Given Daewoo’s lengthy struggle, the scarcity of outbound Iranian M&A, and South Korea’s trade sanctions on Iran, the deal represents a victory over significant adversity.