Hyundai Heavy shares drop amid talk of family feud

SEOUL, Apr 28 (Reuters) Shares in the world's biggest shipbuilder, Hyundai Heavy Industries Co., slumped more than 7 percent on Friday as investors reckoned it was paying too much for a stake in a local shipping firm.

The share purchase, announced on Thursday, prompted market speculation about a feud among family members of Hyundai Group's late founder Chung Ju-yung for control of Hyundai Merchant Marine Co., the country's biggest shipper.

Chung family members are in the spotlight as prosecutors want to arrest Chung Mong-koo, eldest son of Chung Ju-yung and chairman of Hyundai Motor Co., South Korea's biggest car maker, on charges of misusing company funds.

Hyundai Heavy said it and an affiliate would buy a 26.7 percent stake in Hyundai Marine from firms controlled by Norwegian shipping tycoon John Fredriksen for 495 billion won (3.4 million), paying 18,000 won per share, or a 7.8 percent premium to Thursday's closing price.

''The market thought that was too expensive and (Hyundai Heavy) shares reacted,'' said Kim Yung-min, equity strategist at Korea Investment Trust Management.

Shares in Hyundai Marine jumped 15 percent, the daily limit allowed, on Friday to 19,200 won, while Hyundai Heavy closed down 6.3 percent at 90,400 won. The wider market ended 2.26 percent lower.

With the stake purchase, Hyundai Heavy became the biggest stakeholder in Hyundai Marine, edging out Hyundai Elevator Co., the de facto holding company for Hyundai Group.

Hyundai Elevator and its friendly shareholders have 20.5 percent of Hyundai Marine.

''The purchase was made without discussion with Hyundai Group. Hyundai Heavy simply notified us at the last moment,'' a Hyundai Marine spokesman said.

''This confused all of us in the Hyundai Group.'' FAMILY FEUD The original Hyundai Group founded by Chung Ju-yung was split into several businesses spread among his sons. Chung Mong-koo heads Hyundai Motor and Chung Mong-joon controls Hyundai Heavy Industries.

What's left is the original Hyundai Group, which operates tourism projects in North Korea and is now controlled by Hyun Jeong-eun, widow of one of Chung Ju-yung's nine sons.

''This is a family feud at the expense of shareholders,'' said a fund manager at a foreign asset management company in Seoul. ''Why are they paying so much of a premium for Hyundai Marine?'' ''There's a fear that Hyundai Heavy will continue to buy a stake in Hyundai Marine at a more hefty premium, which will hurt minority shareholders,'' he added.

Hyundai Heavy justified its purchase as a necessary step to remove potential takeover threats against Hyundai Marine, its top client.

The shipbuilder bought the stake from Geveran Trading and two other shareholders it refused to identify.

Geveran said on Monday it had become Hyundai Merchant's top shareholder by raising its stake to 17.2 percent from 15 percent, triggering market talk about a hostile takeover.

Geveran is indirectly controlled by Fredriksen, who heads Norwegian oil tanker group Frontline Ltd. and also Golar LNG Ltd., a Norwegian gas tanker group.

Hyundai Marine responded by saying it would issue 30 million new shares -- nearly 30 percent of its outstanding stock -- in June to raise funds for investment.

To help boost Hyundai Marine's defence, Hyundai Elevator has also said it would buy part of a stake in Hyundai Marine that is held by an investor linked with container terminal operator Hutchison Whampoa Ltd. by the end of this month.

''This is going to be an ongoing M&A story that the market is watching,'' said Kim at Korea Investment Trust Management.

REUTERS CS KP1324