UPDATE 2-POSCO, CJ make final bids for Korea Express, Lotte drops out

* CJ plans legal action after Samsung partners with POSCO

* Lotte pulls out of bidding at last minute

* POSCO seen as front runner, may pick preferred bidder Tuesday

* Korea Express shares end down 4.7 pct (Add background)

By Hyunjoo Jin and Ju-min Park

SEOUL, June 27 (Reuters) - South Korean steelmaker POSCO and food-to-entertainment group CJ Group said on Monday they have submitted their final bids for a controlling stake in the country's top logistics company Korea Express Co Ltd .

The deal received a new twist on Monday as the third bidder Lotte Group walked away at the last minute. CJ also said it would seek legal action against its former adviser Samsung Securities Co Ltd , after the latter's affiliate tied up with rival bidder POSCO.

The surprise tie-up between Samsung SDS and POSCO announced on Thursday raised the prospect of the alliance winning in the auction, as it could allow Korea Express to add the country's biggest business group to its core customer base.

The deal is for an at least 37.6 percent stake worth about 1.1 trillion won ($1.0 billion) at the current market value. Lead managers of the stake sale - Korea Development Bank, Nomura and Daewoo Securities - are likely to select a preferred bidder on Tuesday, said an official with direct knowledge of the matter.

CJ SAYS FEELS "BETRAYED"

CJ, led by a cousin of Samsung Group's heir apparent Lee Jae-yong, said in a statement that the company would take legal action against Samsung Securities, which had advised CJ Group since March over its financing plan, acquisition valuation and post-acquisition integration plan.

The CJ group fears a potential confidential information leak and Samsung Securities dropped its advising role last week to avoid potential conflict of interest.

"We feel betrayed by Samsung Securities' immoral act, which is unprecedented in M&A history ," CJ said in a statement.

Lotte Group, which had submitted preliminary bids for the controlling stake in March, pulled out at the last minute, saying Korea Express had become less attractive as the group was looking at a number of overseas M&A targets, a Lotte spokesman said.

Lotte's interest also weakened after the logistics company recently sold off terminal assets that the retail group had been eyeing, the spokesman said.

Shares in Korea Express shares closed down 4.7 percent on Monday after their recently rallies.

The world's No.3 steel maker POSCO said its Korea Express purchase will help reduce its logistics costs, while CJ is looking to beef up its logistics business.

The bid, if successful, would mark POSCO's second major acquisition after its $2.8 billion buy of South Korean trading resources firm Daewoo International last year.

Many investors are discontent with POSCO's expansion into non-steel sectors at a time when it is struggling with pricey raw materials costs and tepid China demand.

Samsung SDS, in which Samsung Electronics' executive vice president Jae-yong is the biggest individual shareholder, said it seeks to boost IT services in the logistics sector by agreeing to buy a 5 percent stake in Korea Express.

The Korea Express stake sale is part of the restructuring process at Asiana's parent Kumho Asiana Group.

Kumho Asiana's acquisition sprees, which included Korea Express and Daewoo Engineering & Construction, led to liquidity problems. It sold part of its Daewoo stake to a private equity fund led by Korea Development Bank late last year. (Editing by Chris Lewis and Yoko Nishikawa)