이 기사는 2021년 07월 08일 08:07 thebell 에 표출된 기사입니다.

Jungheung Group’s effort to acquire bigger rival Daewoo E&C has borne fruit, with the construction group earlier this week named as the preferred buyer for one of South Korea’s largest builders. But at the same time, concerns are growing about whether Jungheung is capable of managing the company whose size is nearly four times bigger by headcount.

Jungheung Group’s companies employed a total of 1,536 people at the end of 2020, while the number of executives and employees working for Daewoo E&C was 5,417 at the end of March this year. Jungheung’s civil engineering unit, which will buy a controlling stake in Daewoo E&C, only has less than 500 employees.

Some expect Jungheung may want a shakeup to make redundancies after the acquisition is completed. “There is speculation that jobs could be cut in civil engineering and plant construction where business environment is less favorable,” said one of the members of Daewoo E&C’s labor union.

The possibility has also been raised that headcount could be reduced in the residential property business where the two companies will likely have the largest number of redundant positions.

However, the prevailing view is that Jungheung has no reason to rush to reduce manpower, especially given that the acquisition is all about scaling up the mid-sized group’s operations at home and abroad.

Daewoo E&C also has been streamlining its business for years under the ownership of state-controlled Korea Development Bank. It even has suffered an exodus of talent due to continuing wage freeze and cost reduction. Experts say Jungheung’s hasty move to revamp the structure of Daewoo E&C could have a negative impact on a potential synergy between the two companies.

Jungheong is also likely to use the deal for its ambitions for overseas expansion. For Jungheung, which has no experience in the overseas plant construction business, retaining talent is critical for successful post-acquisition integration.

Jungheung is likely to decide to operate Daewoo E&C independently given different corporate cultures between the two companies, observers said. Daewoo E&C is run by professional managers, while Jungheung is a family-run business with chairman Jung Chan-sun and his family members acting as key decision makers. But key positions such as financial head and human resources head may be filled by personnel from the acquiring firm.

Jungheung appears to be in a good financial position with strong cash flows. About a half of the 2.1 trillion won ($1.85 billion) acquisition cost will reportedly be funded through debt financing, which the company is planning to repay by next year.

“It is likely that there will be no job cuts during a post-acquisition integration process,” said an official at Jungheung. “Reducing manpower doesn’t make sense when the group is doubling down its efforts to expand the business in domestic and overseas markets.” (Reporting by Jin-young Ko)