An Investor Who Sees The Future

Taekgyu and I each withdrew 13 billion and 1.3 billion KRW before changing our stakes in OTK Company. After that, I started working at K Company and lived by receiving a monthly salary of 10 million KRW.

Since all expenses for work were charged to the corporate card, there was not much need to spend money. I even leased a Porsche through the company.

Having earned a lot during this time, it was time to start dividends.

This year, OTK Company experienced rapid growth.

Even though the value of the stakes in the companies we held had increased, during Brexit, OTK Company and K Company earned about 35 billion USD, and an additional 2.8 billion USD during the U.S. presidential election.

Considering the need for ongoing investments, having a high level of retained earnings within the company is essential.

Currently, after merging with Chrysler, CarOS is expanding its factories and reorganizing production lines. For a while, the focus will be more on new car development, quality improvement, autonomous driving experiments, rather than sales, making it uncertain when additional investment funds will be needed.

Nevertheless, there is enough capacity for dividends.

“Let’s distribute 50 billion KRW this year.”

Distributing dividends incurs a 15.4% dividend income tax, and financial income exceeding 20 million KRW is subject to comprehensive income tax assessment.

Given that comprehensive income tax is levied on an annual basis, it might be wiser to distribute dividends over several years to reduce taxes. However, as my employment income already exceeds 100 million KRW, most of the dividend amount will fall into the highest tax bracket anyway.

With an 80% stake in OTK Company, Taekgyu holding 17%, and Hyunjoo with 3%, distributing 50 billion KRW would result in me receiving 40 billion, Taekgyu getting 8.5 billion, and Hyunjoo receiving 1.5 billion. After tax deductions, the amounts will be halved.

“Why is the tax so high?”

“If you’ve earned money, it’s only natural to pay taxes. Let’s pay with joy for the country and its people’s benefit.”

If used properly, why be stingy about paying taxes?

Taekgyu looked puzzled and said, “And you’re running a company in a tax haven to avoid corporate taxes?”

“Well…”

I also looked puzzled and replied, “You’re the one who set it up, you crazy person.”

Though I am the major shareholder now, it was none other than Taekgyu who founded the company. That’s why the company is named OTK Company.

Ultimately, it is a job well done. If we had established a corporation in Korea, we would have had to pay quite a bit of corporate tax.

It’s not for nothing that global companies and shipowners are creating corporations in tax havens.

We have decided to separately pay the CEO of K Company a performance bonus of 5 billion.

Upon hearing the amount, Senior Sangyeop didn’t seem too excited.

“Taxes are going to be hefty.”

With the existing holdings alone valued at over a trillion, the value of the shares is expected to increase by 2% each passing year.

“Sometimes I wonder if it’s okay to earn like this.”

“Thanks to your hard work, Senior.”

“It’s because I followed your advice well. Even now, if a Brexit happens in my dreams, I wake up abruptly.”

“What if the results turn out opposite?” Senior Sangyeop chuckled and said, “No, the results were the same, but I didn’t follow your advice and sold everything before.”

That remark made us burst into laughter. I brought up the year-end bonus discussion in a meeting with all the employees.

In addition to the performance bonuses we had already decided to pay, we also agreed to give each person double their annual salary as an extra bonus.

Despite Korean financial companies being a bit more restrained, seeing foreign financial companies throw money parties at the year-end is no joke.

Even during the financial crisis, American investment banks paid out millions of dollars in bonuses using emergency funds, which caused public outrage (including the case of Golden Gate).

We have earned enough this year, so a celebration like this should be well-deserved.

Surprised by the unexpected bonuses, the employees cheered and applauded together.

Clap clap clap!

“Wow!”

“Thank you!”

“We will work hard!”

“Jinhoo… No, the CEO is the best!”

Looking at Senior Gihong, who looks like he’s about to die, my heart swells with pride.

If it weren’t for K Company, where would we be?

***

We met Hyunjoo Noona and Ellie at the Golden Gate branch office.

Since they work in the adjacent building, we usually see them once a day, but it has been a few days this time.

Both looked exhausted. They seemed like they should be lying in bed instead of drinking coffee.

“I saw some unfamiliar faces in the lobby. Did we hire new employees?” Ellie asked.

“They are employees who came over for work from the Asia branch,” Hyunjoo Noona replied shortly.

“What’s going on?” Hyunjoo Noona briefly explained when we showed interest.

“A private equity fund under Golden Gate is forming a consortium with a domestic company to participate in an acquisition. Originally, it should have been handled by the Korean branch, but since the system is not established yet, a due diligence team from the Asia branch came in.”

Adding a remark, Ellie said, “They are former team members we used to work with.”

This is Hyunjoo Noona’s specialty. The business she handled in the Asia branch was specifically related to M&A of Korean companies.

“What company is on sale?” I asked.

“X-cop.”

Surprised, I inquired, “That’s the company we have a contract with, right?”

“Yes.”

X-cop is a security company currently in charge of security and management duties at the Golden Gate Building and OTK Building. Our mother and our security detail are also handled by them.

“This time, the American security specialist group, Typo Group, put X-cop up for sale in the Korean market.”

Typo Group acquired X-cop for 50 billion won in the early 2000s. With the growth of the security service, building management, and personal protection markets, X-cop also expanded significantly. As of last year, its revenue was 894 billion won, with an operating profit of 189 billion won.

“The largest security company in Korea at the moment is DS, a subsidiary of the Seosung Group. The second-ranked company is Xscape. Their annual revenue and operating profit have been steadily increasing, accounting for about 10% of the total revenue of the Typo Group.”

“But why are they selling it?”

It’s not that they are operating at a loss, they are a profitable company. They are generating cash every year just by running their operations well. So, is there really a need to sell?

“I’m not sure if you’ve seen the news, but the Typo Group headquarters recently caused a stir due to fraudulent accounting. They are in urgent need of cash right now, so they are starting to dispose of their overseas assets first.”

“Oh, I think I remember seeing that.”

In the past, applying makeup was described as ‘Paint Over’. When you apply makeup, your face becomes beautiful.

Similarly, with companies, even if they are full of deficits and considered ailing companies, if they cook the books, they transform into solid companies with high sales and operating profits.

This cooking of the books is what fraudulent accounting refers to.

Naturally, it’s illegal and a crime.

While in our country, which is quite lenient towards financial crimes, they might overlook it, in the United States, depending on the amount, it is perceived as a serious white-collar crime that could lead to a life sentence.

“In what range is the selling price?”

“At a minimum, around 2 trillion, possibly exceeding 3 trillion.”

I was quite surprised.

“That’s huge.”

That amount surpasses many large conglomerates and their subsidiaries.

Hyun-joo nodded as if in agreement, “This is a rare giant in the Korean market. There hasn’t been an offering of this scale in recent years, so many will be eyeing it from all directions.”

“Do you think Golden Gate could acquire it?”

Domestic financial capital started actively engaging in M&A processes after 2000. Before that, global IBs and private equity funds swallowed up domestic companies with their strong capital base.

Golden Gate, under the leadership of Chase Southwell, has a track record of making numerous successful M&A deals in the Korean market.

“With several major conglomerates and prestigious domestic and foreign private equity funds entering the scene, it seems like a celestial battle is already on the horizon. It probably won’t be easy.”

“Who is the leading candidate?”

The answer was surprising.

“The Eunsung Group.”

Taekgyu asked, “Why are they getting involved here?”

“Currently, the Eunsung Group has entrusted security and protection mainly to D.S. Jaege Group’s second-largest group is relying on the top group’s subsidiary. So, Han Mingoo, the chairman, is planning to acquire X Cop and incorporate it as a subsidiary in any way possible.”

Elli added, “Eunsung has been considering establishing a security company or acquiring one for a while. A suitable opportunity has come up in the market, so they plan to acquire it.”

Generally, large companies and private equity funds have different acquisition purposes.

Large companies typically aim to integrate acquisitions as subsidiaries to grow, while private equity funds aim to acquire at a fair price, enhance the value, and then resell.

Therefore, from a large company’s perspective, there may be room to add a premium beyond the actual value, depending on how much they need it.

Taekgyu said, “Isn’t it just about bidding a higher amount?”

He’s not wrong.

Bidding higher increases the chances of winning. However, blindly raising the bid is risky.

“The winner’s curse is the issue.”

A prime example is the Goldo Group’s acquisition of Dae-Hoo Construction.

During the acquisition, Goldo Group succeeded by offering a 90% premium on the market price. However, the excessive acquisition led to later problems, and they couldn’t handle the amount to be paid to the financial investors, eventually leading the entire group to a workout.

To avoid such a situation, it’s essential to objectively measure a company’s value. This process includes conducting due diligence on factors like revenue, net profit, and operational conditions.

I pondered for a moment.

After the identity is revealed, the most concerning issue will undoubtedly be security and protection.

Korea’s public safety is very good compared to advanced countries. However, violent crimes still occur, including high-profile individuals or their families being kidnapped or murdered.

Although statistically rare, it’s necessary to have security measures in place to prepare for a one in a million event.

For simple security needs, outsourcing is sufficient. But we also need to consider security issues for buildings and businesses.

If Eunsung Group acquires X Cop, we might need to switch to a different security provider. Can’t we entrust our security to a subsidiary of Eunsung Group?

“What about OTK Company participating in the acquisition process?” Ellie asked, surprised.

“Is there a need for a security company?”

We have many other companies besides OTK Company and K Company, so we have enough internal demand.

Outsourcing such crucial issues of security and protection to another company doesn’t sit well with us.

Hyunjoo lit a cigarette and asked, “Is it out of necessity or personal feelings?”

A sharp question.

Is it because we truly need a security company or because it’s a target that Eunsung Group desires?

Without much thought, the answer came to me.

“Both.”

“It’s not ideal to mix personal feelings with business.”

I chuckled, “You know, it’s because of personal feelings that I do business.”

If it wasn’t for personal feelings, I would have happily spent the 685 billion won, earned from investments and more, and wouldn’t have made it this far.

“Do you have confidence?”

Let’s consider the concept of buying companies with money as being similar to investing in startups. But there is one significant difference. The startups we invested in were new companies with no competition.

On the other hand, X Cop is already a successful company, and well-known conglomerates and globally famous private equity funds are eyeing it eagerly.

Can we really outbid them? I didn’t immediately think of success, but somehow, I had a feeling that things would turn out well. I nodded.

“I’m confident.” Taekgyu quickly agreed.

“It seems like it would be interesting.”

Hyunjoo put out her cigarette and smiled.

“Then give it a try. It will be a good experience.”