Foreign Capital M&As
An increasing number of Korean companies, including subsidiaries of major corporations and major business units, are falling into the hands of foreign capital.
According to industry sources, more and more companies in the key sectors of shipbuilding, petrochemicals, elevator manufacturing, and petroleum refining are on the verge of hostile takeovers or have already lost their control to foreign capital last year. One such example is Hyundai Elevator, which is under increasing pressure from Schindler these days. The multinational elevator manufacturer, since becoming the second-largest shareholder of the company, has filed five lawsuits against the top management of Hyundai. Hyundai has asserted that these are designed to take control of the company by means of hostile takeover.
Back in 2003, Schindler had acquired Joongang Elevator and weakened its R&D functions while turning its manufacturing facilities into mere warehouses, causing its market share to drop from 5% to 2% or so. If Schindler makes a hostile takeover attempt against Hyundai, Hyundai’s original technologies could be jeopardized along with a large portion of the local market.
S-Oil, whose largest shareholder is Saudi Arabian oil giant Aramco, has been turned into a 100% foreign company this year as Aramco decided to purchase all of the shares of the second-largest shareholder Hanjin Group. Hanjin made the decision to deal with its own business difficulties, with few investors willing to buy the shares. Aramco’s share in S-Oil has increased from 35.0% to 53.4% through the transaction.
The same trend is found in the steel, heavy, shipbuilding, and chemical industries as well, with those in these sectors looking to sell themselves in the ongoing recession for financial restructuring. The Dongbu Group’s steel production unit and STX Dalian are predicted to be bought by Baoshan Iron & Steel and a Chinese company, respectively. STX France and STX Finland are currently for sale, too.
Two of the main reasons for such disposal are the lack of competitors in the same industries and the companies’ inability to cope with market changes. Most of the corporations are oligopolistic ones and controversies are likely to be raised in the event of takeover by a rival in Korea. Besides, foreign capital are mentioned as their potential acquirers, because most Korean companies are not capable of running the business units.
Many industry insiders are expressing concerns over the ownership transfer, mentioning that the largest shareholders could focus more on making reselling profits than on promoting the growth of the companies. “Korean firms were allowed to procure cash through circular equity investment in the past, but it is prohibited now to make financing more difficult than before,” said Shin Seok-hoon, researcher at the Korea Economic Research Institute, adding, “It is only foreign capital that have the financial resources to acquire Korean firms in the M&A market.”
Still, the others are saying that such M&As of local firms by foreign companies pose no problem according to the logic of the capital market. “Schindler had been brought in as a sort of friendly force during the ownership dispute between entities in the Hyundai Group, and it changed its stance only after the stage was set for an easy acquisition of Hyundai Elevator,” M&A Research Institute director Kim Yeong-jin explained. He continued, “Back in the past, private equity funds such as Lone Star were compared to heroes when the Korea Exchange Bank was saved during the financial crisis, but a negative view began to take root when they started to take profits, which is why the current M&A attempts are criticized.”