A mock-up of Doosan Enerbility's hydrogen turbine is displayed at the company's booth at the CES tech trade show in Las Vegas in January. Courtesy of Doosan Enerbility

Doosan Group withdrew its controversial plan to merge construction equipment firm Doosan Bobcat into money-losing Doosan Robotics upon strong opposition from retail investors and warnings from authorities, but questions still remain over the group's ongoing efforts to restructure its governance of units.

Bobcat and Robotics announced on Thursday they both decided to annul their contract to exchange their shares for the merger, scrapping their merger proposal.

Doosan Group initially proposed to spin off Bobcat from its parent Doosan Enerbility, a plant facilities company, and merge it into Robotics under a ratio of exchanging 100 Bobcat shares with 63 Robotics shares.

This, however, faced strong backlash from not only retail investors but also financial companies and the National Pension Service, as they complained about assigning greater value to the shares of the struggling robotics firm.

Despite scrapping the merger plan, the Doosan companies said in letters to investors that the group will proceed with spinning off Bobcat from Enerbility and make the construction equipment maker a subsidiary of Robotics, citing the necessity of "giving Enerbility capital flexibility for investments."

Enerbility explained that this spinoff is essential because Bobcat has a debt of 700 billion won ($525 million) and separating this from Enerbility's financial books will improve the company's capabilities to attract additional investments for its nuclear energy businesses with healthier fiscal prudence.

But the market still has suspicions that the group's insistence of placing the lucrative Bobcat under Robotics is aimed at maximizing value for the owner family. Bobcat's operating profit accounted for 93 percent of Doosan Group companies' total operating profit last year.

Through its stake in Enerbility, Doosan Group's holding firm, Doosan Corp., indirectly controls a 14 percent stake in Bobcat. Since the holding firm has a higher stake in Robotics, its indirect control of Bobcat would improve to 27.2 percent if Bobcat becomes a child company of Robotics. If the merger takes place as the group has sought, Doosan Corp. would hold a 42 percent stake in Bobcat directly, meaning Doosan Corp. can get greater amounts of dividends from Bobcat.

"The withdrawal of the merger is closer to grandstanding, and problems with the restructuring plan remain the same," said Park Ju-gun, CEO of corporate research firm Leaders Index.

Park said Doosan Group appears to have sought four benefits through the Bobcat merger — separating Bobcat's debt from Enerbility's books, using Bobcat's profits to finance Robotics' investments, bypassing Korea's M&A regulations on a grandchild company and improving the owner family's control of Bobcat. These may benefit Doosan Group, but will likely be detrimental to retail investors.

"After facing investors' opposition and authorities' warnings, the group styled itself as if it has given up all of the benefits, but in fact, it abandoned the third benefit of bypassing M&A regulations," Park said. "If the group really cared about retail investors' value, it should have scrapped the whole restructuring plan."

Doosan's headquarters in Seongnam, Gyeonggi Province / Courtesy of Doosan

Bobcat shareholders cast worries that Bobcat's corporate value may be discounted further under Robotics, in fear that Bobcat may have to pay extraordinary amounts of dividends to Robotics to finance its costly robotics firms.

Reflecting on these worries, Bobcat's share prices shed for three consecutive sessions, closing at 39,800 won on Friday, down 5.35 percent from a day earlier.

Kiwoom Securities analyst Lee Han-gyul also noted that it will "take time before Robotics and Bobcat create synergy in their businesses."

Enerbility's minor shareholders are also expressing worries over the restructuring plan. Act Team, a shareholder activism platform, said in a statement that "nothing has changed for Enerbility's minority shareholders, because the company will lose money-making Bobcat to Robotics."

For Enerbility shareholders, the current spin-off plan also incurs losses. Based on the group's existing plan, an investor having 100 Enerbility shares will have to exchange them with 75 Enerbility shares and three Robotics shares. As of Friday, 100 Enerbility shares were worth 1.81 million won, but the combined value of 75 Enerbility shares and three Robotics shares was 1.57 million won.

"For Doosan Group to complete its restructuring plan as it seeks, the approval of existing shareholders for the spin-off of Enerbility will be necessary," Kiwoom's Lee said. "Since Bobcat was a key subsidiary of Doosan Enerbility, there is also a possibility that Enerbility shareholders may oppose the spinoff."