An Investor Who Sees The Future

Taek-gyu asked in surprise, “Why is Eunsung Motors involved here?”

I had the same thought. Why is Eunsung Motors getting dragged into the management rights dispute of Seosung SB?

“As you know, Seosung SB is the fifth-largest electric vehicle battery producer in the world. And Eunsung Motors is hoping to expand its electric vehicle production.”

The shift from internal combustion engines to eco-friendly vehicles (electric and hydrogen) is an unstoppable trend. Eunsung Motors has also started producing electric vehicles lately and currently sells two models.

The reason why automakers are not welcoming this shift to electric vehicles is simple: they have to share their sales profits with battery manufacturers.

The cost of the battery accounts for over 30 percent of the total cost in an electric vehicle. Consequently, that amount flows into the pockets of battery companies, which understandably frustrates automakers.

So, are they trying to acquire Seosung SB?

Vice Chairman Im Jin-yong explained the situation.

“My mother plans to make my younger brother the CEO of Seosung SB.”

The current CEO of Seosung SB is Chairman Im Il-kwon. Since he has stepped down from management, his loyal subordinate, President Lee Su-hak, is serving as interim CEO.

Taek-gyu asked curiously, “Why is my mother choosing sides… or rather, why is she backing my brother?”

Vice Chairman Im Jin-yong smiled wryly. “There are various reasons for that.”

First, there is a 13-year age difference between Vice Chairman Im Jin-yong and the youngest, Im Seung-yong, of Seosung Heavy Industries. Being a late-born child, their mother, Yeo Jong-hyun, dotes on her youngest son. In contrast, Vice Chairman Im Jin-yong is known to have a strained relationship with his mother.

Family matters are sensitive, so it might be best not to pry further.

Instead, Taek-gyu asked something else. “Okay, so you’re backing your brother. But what’s the relationship between my mother and Eunsung Motors?”

“My mother’s younger sister, so my aunt, is the lady of the Eunsung Motors Group.”

Joongilbo is Korea’s largest newspaper publisher and owns two cable channels.

Although the influence of the internet and social media has diminished now, decades ago, public opinion hinged on a single article.

During the time when chaebols and the media supported each other, Chairman Yeon Tae-min could arrange for his two daughters to marry into wealthy families. His eldest daughter, Yeon So-hyun, married Im Il-kwon, the heir of the Seosung Group, while his younger daughter, Yeon So-jin, wed Han Min-goo, the heir of the Eunsung Group.

In other words, Chairman Han Min-goo is now the brother-in-law of Chairman Im Il-kwon.

The two prominent chaebols in Korea sometimes collaborated and sometimes competed, but the sisters, Yeon So-hyun and Yeon So-jin, always maintained a close friendship.

Yeon So-hyun officially holds the title of Director of the Seosung Art Museum.

True to the art museum operated by the Seosung Group, it frequently hosts exhibitions of renowned domestic and international artists. Each time, Yeon So-jin attends, showcasing the sisterly bond.

It’s likely that Director Yeon So-hyun’s decision to partner with Eunsung Group was heavily influenced by her sister.

“What is the current shareholding structure of Seosung SB?”

“Mother holds 5.8%, and my sister has 4.7%.”

“And you?”

“My share is 0.8%.”

Taek-gyu was taken aback. “Is that all?”

Vice Chairman Im Jin-yong smiled. “And Seosung Electronics holds 15.9%.”

The reason chaebols in Korea can dominate numerous subsidiaries with such tiny shares is due to the beneficial system of circular shareholding.

Regardless, since Vice Chairman Im Jin-yong exercises control over Seosung Electronics, combining their stakes results in 16.7%, surpassing the combined 10.5% of the mother and sister.

“Then, isn’t it a problem?”

“But if the largest shareholder sides with my sister, it could cause issues.”

“Ah!”

So that was the twist!

Unlike me, who understood right away, Taek-gyu tilted his head.

“Who is the biggest shareholder?”

“Think about it. Who would be the largest shareholder of domestic large corporations?”

Vice Chairman Im Jin-yong said, “It’s the National Pension Service.”

The National Pension Service has assets exceeding 600 trillion won. This level puts it among the top three pension funds in the world. The National Pension invests this massive wealth in domestic and foreign stocks, real estate, bonds, and more.

Due to the sheer size of its investments, it typically owns over 5% of many large companies.

“How much share does the National Pension hold?”

“16.1%. It was originally around 10%, but it has increased sharply in the last year.”

“……”

That’s quite a lot.

The National Pension follows a principle of diversified investment, so it’s rare for them to acquire more than 10% in a single company.

“The National Pension probably doesn’t exercise its voting rights much.”

The National Pension is the largest shareholder of many big companies. Holding 9% of Seosung Electronics speaks volumes (that’s already worth 30 trillion won).

Naturally, they can exercise voting rights based on their holdings, but they have mostly not done so.

“A while ago, President Park Si-hyeong mentioned the Stewardship Code at a Cabinet meeting.”

Taek-gyu looked at me.

“Stewardship what…?”

“Stewardship Code. It means that institutional investors should act as responsible stewards.”

“What does that mean?”

“In short, it’s urging them to actively exercise their voting rights.”

President Park Si-hyeong recently pointed out the losses incurred on several occasions, criticizing the chairman of the National Pension Service for not managing the national pension funds—integral to citizens’ retirement—diligently.

He is right, of course.

Who would oppose the idea of protecting the retirement funds of the public? Yet, there seems to be a deeper implication behind his words.

This is why one should approach politicians’ statements with caution.

As we can see from past events, President Park thoroughly acts in favor of Eunsung Motors’ interests. Both Chairman Choi Moon-hyung of the National Pension Service and Director Kim Myung-soo of the Fund Management Headquarters are close associates of President Park.

Im Il-kwon is a symbolic figure in Korea’s economic history. No one can deny that he has significantly grown the Seosung Group and turned Seosung Electronics into a world-class company.

Even if the National Pension Service were to exercise its rightful voting rights, dismissing Im Il-kwon would likely face strong opposition.

However, the situation will change once he passes away.

When a CEO dies, appointing a new CEO is natural. The issue will simply be whether to side with the brother or the younger sibling.

Has the intention to increase shares of Seosung SB been driven by a hope for such a day?

I calculated again.

Combining the shares from the National Pension Service raises the hostile shareholding to 26.6 percent, while Vice Chairman Im Jin-yong holds 16.7 percent.

Without securing friendly shares, he will inevitably be outvoted at the shareholders’ meeting.

Taek-gyu curiously asked, “But even if the younger brother becomes CEO of Seosung SB, it doesn’t directly relate to Eunsung Motors, does it?”

That’s a valid point. I had been wondering about that too.

“The mother intends to marry her son to Han Hyo-rin, the executive director.”

This is a name I haven’t heard before.

“Who is Han Hyo-rin…?”

“She is the second daughter of Han Jeong-goo, the CEO of Eunsung Card.”

Han Young-joo, the founder of the Eunsung Group and the richest individual in South Korea, had a reputation for being a child magnate as well.

He has five sons and three daughters. (Not to mention countless illegitimate children.) While having many children may be a source of happiness for parents, as the chairman of a group, he couldn’t help but worry about the succession.

Originally, the successor of Eunsung Group was the eldest, Han Min-goo.

As the eldest son with excellent management skills, it seemed obvious that he would inherit the group. However, unexpectedly, in his later years, Chairman Han Young-joo named his fourth son, Han Eun-goo, as the designated successor instead of Han Min-goo.

For Han Min-goo, this was infuriating.

He couldn’t let the entire group fall into his younger brother’s hands. So, he gathered not only his other siblings but also his loyal aides to wage a management dispute against his fourth brother and his father.

As a result, what was practically an empire, Eunsung Group, was effectively dismantled.

At this time, Han Min-goo took Eunsung Motors, the second brother Han Hyun-goo took Eunsung Department Store, the third brother Han Sang-goo took Eunsung Heavy Industries, and the fifth brother Han Jeong-goo took Eunsung Capital.

While Han Eun-goo barely retained the position of chairman at Eunsung Group and the key affiliate Eunsung Construction from his brothers, it was a victory filled with wounds.

Afterward, as Eunsung Construction and Eunsung Electronics faced bankruptcy, Eunsung Group declined, while Han Min-goo, with his exceptional management abilities, grew Eunsung Motors into a group that surpassed the heyday of Eunsung Group.

Returning to Han Jeong-goo, the early 2000s credit card crisis put Eunsung Capital at risk of bankruptcy.

As the situation worsened, Han Jeong-goo sought help from Han Min-goo. It was a desperate plea for survival, disguised as a request for assistance.

Chairman Han Min-goo accepted the request, supporting group funds to acquire Eunsung Capital. However, perhaps doubting his brother’s management capabilities, he separated Eunsung Capital from Eunsung Card and only entrusted Han Jeong-goo with managing Eunsung Card.

Han Hyo-rin is Han Min-goo’s niece and a cousin of Han Chan-young.

Is the plan to draw Seosung SB towards Eunsung Motors through marriage?

But that alone wouldn’t suffice.

“If they marry, Seosung SB will sell its shares back to Eunsung Motors Group. Currently, Seosung SB’s stock is at a low point, so purchasing wouldn’t be a significant burden.”

As stated, the stock price that once peaked at 320,000 KRW now hovers below 170,000 KRW, largely due to difficulties in electric vehicle battery sales.

China has deliberately excluded South Korean battery companies from subsidy eligibility to support its domestic battery manufacturers.

Seosung SB was supposed to supply batteries to Eunsung Motors and had even signed an MOU (Memorandum of Understanding), but for some reason, Eunsung Motors turned their back at the last minute and signed a contract with CL Chemical instead.

Could it be that this was a plan to lower Seosung SB’s stock price?

“What is the current price of the company’s stock?”

“6.3 percent.”

It’s somewhat like a marriage dowry.

Taekgyu asked, seemingly confused.

“Can’t we defend with our own stocks?”

It’s a good idea, but…

“Self-owned stocks have no voting rights.”

Bought-back company stocks are excluded from voting and dividends.

Vice Chairman Im Jinyong said with a pained expression.

“Eunsung Group will first secure self-owned stocks, and then increase their share in Seosung SB through on-market purchases and new stock issuance. Once the National Pension Fund starts selling after everything wraps up, the stock price is bound to drop further.”

This would result in substantial losses for the National Pension Fund… but since it’s public money, does it really matter?

I couldn’t help but think to myself. Regardless of personal feelings, Chairman Han Mingoo’s management skills are indeed impressive.

Vice Chairman Im looked at me and said.

“What I would like to ask is for OTK Company to buy Seosung SB’s self-owned stocks.”

Selling self-owned stocks to a third party to secure friendly shares is a common strategy for defending management rights.

A notable example is when Dexon threatened the management rights of LCSoft, leading CEO Kim Jintae to exchange self-owned stocks with Netmarble.

“Are you asking me to play the role of a white knight?”

“White knight? White knight?”

“That’s right.”

In a hostile takeover, shareholders who help defend management are called White Knights. Naturally, shareholders on the opposing side are referred to as Black Knights.

Upon hearing my explanation, Taekgyu nodded.

“Oh, really? I thought you were talking about Gandalf.”

“Why is Gandalf coming up here?”

“That old man’s nickname is White Knight. He fought against Sauron, who was trying to carry out a hostile M&A in Middle-earth, which is probably how he got that nickname.”

“………”

Please stop.

Vice Chairman Im Jinyong chuckled.

“It’s a classic, isn’t it? I like it too.”

Actually, I like it as well.

I calculated arithmetically. After a few additions, the answer soon emerged. Even if we combine our shares, it’s only 23%. That’s still short of the hostile stake of 26.6%.

“That alone won’t be enough for defense.”

“That’s why I’d like to ask for additional acquisitions in the market.”

We need to buy at least 3.6% of the shares.

Currently, Seosung SB’s market cap is 22 trillion won.

To acquire a 10% stake, we would need to spend over 2 trillion won.

“The hostile stake of 26.6% isn’t everything. They might have secured other shares as well, right?”

Vice Chairman Im Jinyong nodded in agreement.

“That’s correct.”

In other words, spending 2 trillion won doesn’t guarantee success in defending management rights. If things go wrong, we might just end up with the stock and nothing else.

“Why are you asking us for this?”

“I need allies who won’t betray me.”

Vice Chairman Im Jinyong looked at me and said,

“And Seosung Group and OTK Company can cooperate in the future, can’t they?”

Cooperation…

In that moment, a hologram appeared before my eyes.