A dancer performs during a demonstration of Doosan's robotics, lighting, and music production technology during the CES tech show in Las Vegas, Jan. 9. AP-Yonhap

Doosan Group is facing growing doubts over its decision to merge Doosan Bobcat, its lucrative construction equipment unit, into its smaller robotics unit, Doosan Robotics.

Retail investors, proxy advisors and even lawmakers are expressing anger at the group's decision because Bobcat shareholders are being forced to exchange their shares in a company whose operating profit surpassed 1.39 trillion won ($1.06 billion) last year with that of a company that piled up 19.2 billion won in operating losses during the same period.

According to Rep. Kim Hyun-jung of the main opposition Democratic Party of Korea (DPK), he and 16 other DPK lawmakers tabled a revision to the Financial Investment Services and Capital Markets Act to strengthen regulations on assessing the value of companies subject to mergers and acquisitions.

“Doosan Bobcat, with annual sales nearing 10 trillion won and operating profits exceeding 1 trillion won, is being unfairly valued on par with Doosan Robotics, whose sales are only 1/183rd of Doosan Bobcat's and which has incurred operating losses,” the lawmakers wrote in their revision proposal. “There are criticisms that this constitutes an exploitation of the current law.”

On July 11, Doosan Group announced its plan to delist Doosan Bobcat and merge it into Doosan Robotics, in an apparent strategy to use Bobcat's profitability as a source for the costly investments in Doosan Robotics. When this process is completed, Bobcat will be fully owned directly by Doosan's holding firm, Doosan Corp. Doosan plans to hold shareholders meetings, of the related companies, on Sept. 25 for approvals.

As a result, each Bobcat share will be exchanged for 0.63 Robotics shares, thereby giving a higher value to Robotics' shares. Doosan Group says it complied with the capital markets act in setting the ratio, which stipulates the exchange ratio for mergers involving listed companies should be determined based on the average values of their recent stock prices.

Doosan Bobcat's manufacturing facility in Statesville, North Carolina, U.S. / Courtesy of Doosan Bobcat

“All of these actions are serving the purpose of the controlling stakeholder,” the Korean Corporate Governance Forum said in its commentary, referring to Doosan Group's holding company, which holds a 68 percent stake in Doosan Robotics while controlling Doosan Bobcat through an intermediate firm.

“A total of 54 percent of [Doosan Bobcat] shareholders are retail investors, and they will face an abysmal consequence … [Doosan] Robotics, which was listed last year, has been showing volatile stock price movements due to thematic approach, and its price-sales ratio surpasses 100, meaning it is extremely overvalued in the market.”

Solidarity for Economic Reform, a civic group focused on economic issues, also criticized in a statement that the merger plan is “not the best plan for the interests of the company and shareholders” and “the two companies' boards served Doosan Group's interests, rather than general shareholders.”

The civic group said that the companies should have merged through purchasing stakes in the market, not the stock exchange, and the current plan “only benefits Doosan Robotics.”

Global ratings agency S&P also on Wednesday placed Doosan Bobcat's credit ratings on its watch list with negative implications.

A palletizing robot moves a box at the Doosan Robotics plant in Suwon, Gyeonggi Province, in this undated handout photo. Courtesy of Doosan Robotics

“S&P Global Ratings believes the transaction may lead to an increased likelihood of negative intervention from the group largely due to the group parent's (Doosan Corp.) increased ownership of Doosan Bobcat,” it said. “Moreover, Bobcat's standalone credit profile may also face some downward pressure on a potential alteration of financial policy and increasing financial burden.”

Analysts also note that the benefits will be concentrated on Doosan Robotics.

“There could be an exodus of investors, particularly among Doosan Bobcat's overseas shareholders who had counted on the company's stable profit generation and dividends,” Kiwoom Securities analyst Lee Han-gyul said. “However, in the short term, there is also anticipation of a potential stock price increase in Doosan Bobcat depending on Doosan Robotics' stock performance.”

Doosan Bobcat said in its regulatory filing that “both companies will continue to operate their current businesses while striving to enhance management efficiency and increase shareholder value,” adding "the companies will work towards achieving functional and organic integration between the two companies to maximize synergies.”