Expanding Business Territories through M&As

There is an analysis that the economic recession since the global financial crisis in 2008 and the current European fiscal crisis are the momentum for large businesses entering the new businesses.

Samsung Group is speeding up the consolidation of its medical and healthcare businesses. It took over the Nexus Division of ITC, a US provider of devices for examining cardiac disorders, in the middle of November in the wake of establishing Samsung Biologics, a joint-venture company for producing biomedicines, in April, 2011. It secured a biomedical equipment maker through M&A following the acquirement of Ray, an X-ray machine maker, and Medison, an ultrasound medical device provider in Korea, in 2010.

It is because Samsung Group chose medical equipment as one of the 5 new businesses for the future, along with solar cells, batteries for vehicles, LED, and biomedicines that it is willing to take over such medical instrument enterprises. Samsung plans to raise annual sales up to 10 trillion won by putting 1.2 trillion won into the Healthcare field over the next ten years.

The helm of Samsung’s healthcare business is taken by President Yoon Soon-bong, known as ‘an innovation advocate’ in the group. His official title is President of Support of Samsung Seoul Hospital and he is head of a group aiming to push the medical business to the top. The long title enables us to assume that the area under his management is vast. He will play the role of supporting cooperation between the hospital and affiliates in the bio healthcare business as well as managing the hospital. Therefore, it seems that cooperation between Samsung Medical Center and the medical and healthcare business, such as the Health Division of Samsung Electronics, Samsung Biologics, etc., will be strengthened. A Samsung official stated, “Since Samsung Group is driving exports of hospital packages to Asian and Middle Eastern regions such as Vietnam, Turkey, and the UAE, with Samsung C&T Corporation, Samsung SDS, Samsung Electronics, and Samsung Seoul Hospital as the center, emphasis will be placed on President Yoon’s ability to coordinate the affiliates.”

Hanwha Group issued the ‘Solar Cell’ order to Kim Dong-gwan, Chairman Kim Seung-yeon’s eldest son and deputy senior manager in the Chairman’s office. Kim was appointed by the board of directors of Hanwha SolarOne as chief of the planning department on December 15. Although he entered Management & Planning HQ affiliated with the Chairman’s office in January, 2010 after graduating from Harvard University in politics, there was no particular area that he was in charge of. Through this move, he is now in the front line, planning and executing a business strategy in person. Some people see the situation as Kim Seung-yeon’s way of providing his children with business administration training. It is consided as the mind of chairman Kim, who also rose to the head of Hanwha Group at the age of 29 as his father Kim Jong-Hee, ex-chairman, passed away very early. Analysts say that he intends to provide his son with business administration training ‘on the spot’, not ‘in theory’

The business group, however, is not likely to be all smooth sailing. The prices of intermediary goods and finished products decreased by half due to reduced demand for a photovoltaic solar system in Europe hit by the financial crisis and oversupply of parts made in China. Therefore, photovoltaic solar system-related manufacturers including LG Chem cancelled their investment plans, such as expanding production facilities, or placed them on the back burner for the time being. Hanwha SolarOne is also suffering from serious financial difficulties, seeing huge losses for two consecutive quarters in 2011.

The industry considers stationing Kim Dong-gwan in the front line as Hanwha Group’s willingness to continue investing in the solar business. Hanwha is planning to complete vertical systematization of the businesses of polysilicons (Hanwha Chemical), wafers, cells and modules (Hanwha SolarOne) and solar photovoltaic power generation (Hanwha Solar Energy) by 2013. “The heart of Hanwha Group lies in manufacture and insurance, both of which are businesses for domestic markets, which have an obvious limit in regards to growth,” an official at an economic organization analyzed, adding, “That’s why the chairman shows a strong attachment to the solar photovoltaic business.” It appears that Kim Dong-kwan will strive, based on the ownership, to break through difficulties by directly generally managing the solar photovoltaic businesses which have been dispersed in the affiliates.

Hanjin and Hyundai Owners’ Families Paying Attention to New Businesses

Together with business groups’ developing new growth engines for their launchings into new businesses attract attentions, which are part of solicitudes for the owners’ families. Hanjin Group’s entrance into the Marina business and Hyundai Motor Group’s entrance into the life insurance business are part of this. It attracts attentions from the industries whether the lunched businesses will be successful and what influences the new businesses will have on the division of the groups among family members in the future.

The Incheon Wangsan Marina business processed by Korean Air Line (KAL) and Incheon City will be managed by Cho Hyun-ah, executive director of KAL. KAL announced on November 3, “Wangsan Leisure Development will be established at a cost of 6 billion won in order to build Wangan Marina, and Cho Hyun-ah, executive director of KAL, will be in charge.”

Cho Hyun-ah, executive director and eldest daughter of Hanjin Group Chairman Cho Yang-ho, is also currently vice president of in-flight service and catering, and president of a hotel business affiliate KAL Hotel Network. Her responsibility came to include the marine and leisure sports business, rising to president of Wangsan Leisure Development recently.

Some within business circles analyze that Cho Hyun-ah being in charge of the Marina business is a “rough sketch of the group’s division in the future through diversification of businesses, such as by entering new areas.” They anticipate that the expanded hotel and tour service sector will be given to the eldest daughter, Cho Hyun-ah, executive director, while logistics, the main business, will be passed on to the eldest son, Cho Won-tae, executive director. In relation to this forecast, a KAL official said, “It is only because Cho Hyun-ah has managed marina-related businesses such as hotel, leisure, and tour that she was appointed as CEO of the marina business. The outline of succession or the group’s division is a figment of overactive imagination.”

Word got around that Hyundai Motor Group’s acquisition of Green Cross Life Insurance is also indication of “entering a new business with the group’s division in mind.” Hyundai Motor Group signed a contract to acquire 84% of Green Cross Life Insurance held by Green Cross Holdings for 228 billion won on October 21. Hyundai Mobis, Kia Motors, and Hyundai Commercial took over 37.4%, 28.1%, and 28.1% of the stakes, respectively. “We acquired Green Cross Life Insurance to complete our financial portfolio in the group rather than to be top of the insurance industry,” a Hyundai Motor Group official said. “Hyundai Motor Group came to blanket every sector, excluding the banking sector, with an insurance company in the wake of Hyundai Card, Hyundai Capital, Hyundai Commercial, and HMC Investment Securities through the recent acquisition.”

Some people say the acquisition has been done, “for dishing out the chairman’s property to his daughter” and “for taking care of his son-in-law.” It is said that because Hyundai Commercial will be a significant shareholder of Green Cross Life Insurance dominated actually by Jeong Myeong-yi, an advisor and second daughter of Hyundai Motors Group Chairman Jeong Mong-gu, and her husband Jeong Tae-yeong, president of Hyundai Card. Jeong Tae-yeong took over Diners Card when it was 7th place in the industry in 2001, changing its name to Hyundai Card, and helping it reach 2nd place. He is responsible for the financial sector of Hyundai Motor Group, excluding HMC Investment Securities, and is also currently president of Capital and Commercial as well as Hyundai Card. In addition, although it is difficult for Green Cross Life Insurance to create a synergy effect with the auto industry, since it can be connected with financial companies such as Hyundai Card, Capital, and Commercial in business, such anticipation builds up steam.

SK Group and Hyundai Group in Vacillation

There are some conglomerates that cause concerns about a vacuum in management. SK Group and Hyundai Group are part of them.SK group dare not make any investment to show for it even though it entered the semiconductor business by acquiring Hynix Semiconductor as the chairman is under investigation by the public prosecutor's office. Hyundai made some confusion in the process of entering the 4th mobile communication business and finally gave up.

Recently, SK Group has been apparently worried about the prosecution’s investigation of Chairman Choi Tae-won and Head vice-president Choi Jae-won. The semiconductor business and overseas resources development business which demand considerable investment have already been put on hold. SK Group believed it could free itself from the dishonor that it was an enterprise simply for domestic markets, mainly oil refining and communications, by acquiring Hynix Semiconductor Inc., considered a big fish in the M&A market in 2011. It was also predicted that it would become a new growth engine, while growth in the communications business, which was SK Group’s main growth engine, became stunted, and the China business, into which Choi Tae-won put considerable effort, flinched.

SK Group, however, announced the largest investment plan on January 5 when a large deleterious factor of Choi Tae-won’s indictment without detention became an issue, but did not state specifics. Details are scheduled to be made public according to affiliates. From the rough plan of investment compared with that of last year, it is expected that more than 4 trillion won will be invested in Hynix Semiconductor Inc. this year. Hynix Semiconductor Inc. decided to use most of the fund (2.4 trillion won), which was secured through the issuance of new stocks, for investment in facilities. Reportedly, SK Group will also invest more than 2.3 trillion won in building communications infrastructure, such as LTE (4th generation mobile communication) networks through SK Telecom, the main affiliate. It has already determined to construct LTE networks in 84 cities across the country by April this year, in addition to expanding investment drastically in battery, chemical and optical film facilities. Investment in resources development, which chairman Choi has fostered as an export business with the semiconductor business, will increase by 800 billion won, compared with that of last year.

It is being predicted that the division of affiliates among SK Group’s cousins will accelerate once the investigation is settled. Chairman Choi Shin-won controls affiliate SKC, while Vice-chairman Choi Chang-won is in charge of three affiliates; SK Chem, SK E&C, and SK Gas.

It seems difficult for Hyundai Group, which dilly-dallied with the matter of participating in the 4th mobile communication business, to push forward the new business for the time being. Hyundai Group is focusing its efforts on the shipping industry, including container ships, bulk ships, etc., and considering mobile communication as the next-generation business while with participation in the 4th mobile communication (IST consortium) The Korea Communications Commission also tried to invite large businesses like Hyundai Group to the 4th mobile communication project to heighten stability of the business because it contains plenty of uncertainty and intended.

Hyundai Group, however, could not help but follow other companies in the consortium, since it had no communications expert. The confusion in the group was shown by it trying to participate in the consortium as the second shareholder while saying it would push forward the new business. Such an inside story led to repeated changes in making decisions on whether to participate or not. , and, finally Chairperson Hyun Jeong-eun gave orders not to participate. Hyundai Group could not avoid having its reliability damaged.

A recent study titled ‘plans to make an investment in facilities 2011’ conducted by the Korea Chamber of Commerce and Industry, and targeting 1,011 enterprises across the country including 322 conglomerates and 689 small and medium-sized enterprises, shows that investment by those enterprises will increase 4.1% on average next year. This is 2% lower than results of similar research in 2010 (6.1%). However, enterprises that answered that they would increase investment in 2012 accounted for 61.4% of the total. “Investment for the future” and “entering new businesses” were cited as the reasons for expanding investment, in addition to “need for improvement in facilities.” It shows its will to make an offensive management by making best use of company’s infrastructure as things get more difficult.