Around $8 billion in shareholder value were sent to oblivion at Hyundai Motor Co. and two affiliates, after the companies failed to seek board clearance for a $10-billion bid for a plot of land in Seoul’s high-end Gangnam district. Aside from falling shares at Hyundai Motor, Kia Motors and Hyundai Mobis, investors expressed disgust in the move as the bid was around three times the land’s appraised value.
The Hyundai-led group won the auction for the land by bidding KRW10.55 trillion ($10.12 billion), which is more than triple the appraised amount. This prompted a sharp sell-off in the shares of the three companies -- Hyundai Motor, Kia Motors and Hyundai Mobis.
As agreed between the companies, Hyundai Motor will pay 55 percent of the price, Hyundai Mobis to contribute 25 percent while Kia Motors will pay 20 percent.
KEPCO is selling the property in Gangnam district in Seoul as the largest electric utility is South Korea plans to cut its debt by almost KRW15 trillion over the next two years. KEPCO is also selling its Gangnam property as it relocates to Naju, South Jeolla Province, in the next few months as part of the government’s balanced regional development plan. The market value of KEPCO’s land in Gangnam was estimated at around KRW3.3 trillion.
According to an official with Korea Electric Power Corporation (KEPCO), owner of the land, Hyundai Motor Group won the sealed auction by "a wide margin." Fellow bidder Samsung Electronics reportedly placed a bid between $4 billion and $5 billion.
While boards of the three companies discussed and approved bidding for the KEPCO land, the bid price was not shared with directors since it was considered as confidential, three of the directors disclosed.
The Hyundai Motor and Kia Motors boards unanimously green-lighted a bid for the land. One of the directors said that the intangible benefits from acquiring the land “go beyond the appraisal price.”
Another director at one of the firms said its board heard and discussed information about the land’s appraisal price as well as the value of nearby buildings. The companies were planning to buy the land to house a headquarters complex, hotel and automotive theme park. “Hyundai has many grand ideas around the KEPCO land," the director remarked to Automotive News.
As for the Gangnam property, Hyundai is planning to redevelop the land with the construction of a global business control tower. This would accommodate some 30 of its affiliates and subsidiaries. Hyundai is planning to collect total rent of KRW240 billion a year from its affiliates.