20080410-UBS-Korea Holding Companies

C onsider timing
􀂄 Deregulation transforms the picture
The new South Korean government is proposing various deregulation measures
that should encourage M&A activity. Under the previous administration,
conglomerates focused more on ownership restructuring, share buybacks and noncore
asset sales. However, in the next few years we think large conglomerates
could focus more on acquiring new assets in different sectors.
􀂄 Staying cautious on potential acquirers of financial assets
We believe M&A involving financial and industrial conglomerates will be the key
issue in the new environment. We recommend staying away from potential
acquirers of financial assets in the near term.
􀂄 No rush into holding companies
Our analysis shows holding companies tend to outperform during the latter phase
of a bull market. In our view, it may not be too late to buy holding companies once
the recovery of operating asset values and of the market index is confirmed.
􀂄 Generally cautious
We remain cautious on Doosan Corp. Our top pick is LG Corp., which we believe
may have the clearest ownership structure and the least interest in acquiring
financial assets.