UPDATE 2-POSCO seen buying Daewoo Int'l for $3 bln-source

By Rhee So-eui

SEOUL, May 14 (Reuters) - South Korea's POSCO is set to clinch its biggest acquisition with a $3 billion deal to buy Daewoo International, as the world's No.4 steelmaker tries to grab raw materials and boost sales overseas.

POSCO is likely to beat retail-focused Lotte Group and be picked as the preferred bidder to buy 68 percent of South Korea's biggest trading firm Daewoo later on Friday, a source close to the deal said.

'The acquisition of Daewoo International will further help POSCO secure raw materials. This is important particularly as POSCO seeks to develop businesses other than steelmaking,' said Kim Hyun-tae, an analyst at Hyundai Securities.

China's steel mills are far ahead in snapping up stakes in Australian iron ore prospectors to trim dependence on the big suppliers, Rio Tinto and BHP Billiton .

A deal with Daewoo will give POSCO, which depends almost completely on imports of iron ore and coking coal, exposure to major resources assets such as an 8 trillion won gas development in Myanmar, a nickel project in Madagascar and coking coal projects in Australia.

'POSCO's bid price was slightly above 3.4 trillion won ($3 billion) while Lotte proposed less than 3.3 trillion won,' said the source.

'POSCO seems to be leading in some other elements,' added the source, who declined to be identified because a decision had not been made yet.

POSCO had been named the preferred bidder, according to a Yonhap report.



INVESTMENT SPREE

Cashed-up POSCO plans a record 9 trillion won ($8 billion) investment and acquisition spending spree this year as it seeks to expand through the supply chain and challenge acquisitive Chinese rivals.

But POSCO so far has little proven record in successful mergers and acquisitions, and its ambitious and wide-ranging plans have rattled some investors.

Its latest major failure in its expansion drive include a faltered deal in 2008 to snap up Daewoo Shipbuilding & Marine Engineering, one of its major customers.

POSCO is still seen as a leading contender to buy Daewoo Shipbuilding if and when its sale process kicks off later this year, despite concerns raised billionaire investor Warren Buffett, whose Berkshire Hathaway owns about 4.5 percent of POSCO.

Shares in POSCO rose 2 percent to 466,000 won, versus a 0.1 percent gain in KOSPI on Friday. But the stock is down about a quarter so far this year in virtually flat market.

POSCO, run by CEO Chung Joon-yang, declined to comment on the size of the deal or its prospects, but the company has said Daewoo was its top M&A priority and the deal would help boost its exports, especially to emerging markets. Daewoo ships POSCO's steel products and trades iron ore and base metals.

Daewoo also has a 24 percent stake in unlisted Kyobo Life, South Korea's No. 3 life insurer.

From state energy agencies to top business groups, South Korea is increasingly looking for overseas energy and resources assets and channels to ensure secure supplies.

For Daewoo International, POSCO's support will make key contribution in resource development projects.

Daewoo has been considered one of the most attractive acquisition targets this year as it focuses on the development of buoyant oil, gas and resources. Its trading business, the biggest in South Korea, should benefit from a global economic recovery.

South Korea's Public Fund Oversight Committee is currently holding meetings to decide on the buyer of Daewoo, with a decision likely early this afternoon, other sources said.

Nine local financial institutions, led by state-run debt clearer Korea Asset Management Corp (KAMCO), had offered to sell up to 68 percent of Daewoo International, a former unit of the defunct Daewoo Group.

($1=1130.0 Won)

(Additional reporting by Suh Kyungmin, Jungyoun Park and Kim Yeon-hee; Editing by Jonathan Hopfner and Lincoln Feast)

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