The Management Rights Dispute (4)
A building on Teheran-ro in Gangnam.
The entrance was a mess of banners, and several tents had been pitched out front. People standing there shouted through megaphones.
"Get the speculative capital out!"
"Drive out the foreign money!"
"Protect our jobs!"
I looked down at the scene and said, “There seem to be more banners and more protesters than last time.”
It made sense. Before, it had only been opposition to a merger; this time, it was a fight for control of the company. It was only natural the backlash would be bigger.
Kim Sung-gwun, of course, looked as if he didn’t care at all.
“You fooled me completely last time. Continue Capital, of all things. So that’s why you turned down the job offer.”
“I’m sorry I couldn’t tell you sooner.”
“No need to apologize. More importantly, are you really just the agent?”
I smiled. “For now, let’s say I am.”
He laughed heartily. “Haha! Then for now, I’ll take it that way too. Though before coming here, you met Vice Chairman Ju Cheol-jin.”
I put on a deliberately startled expression. “You seem pretty well-informed about Hanjeong Group’s movements.”
“I’m sure they’re just as aware of us. On top of that, the business and political worlds are all watching this closely.”
In other words, everyone knew I was here.
“There are a few things I’d like to ask.”
“Go ahead.”
“How did you find out that Hanjeong Group had bribed the K-Culture Foundation?”
“Why do you assume it was our side that tipped you off?”
“You knew before the article came out that the National Pension Service would give up its voting rights, didn’t you?”
“Let’s just say we got lucky.”
He looked curious, but he didn’t press further.
“Thanks to that, you gave us a huge help.”
We sat down, and his secretary brought over coffee.
“How interested is Continue Capital in management control?”
“Not very.”
Activist hedge funds used all kinds of strategies to push up the share price of companies they had taken stakes in: listing subsidiaries, selling assets, restructuring, expanding dividends, and so on.
It sounded easy when you only heard the words, but there were very few people who could actually carry it out. Kim Sung-gwun, on the other hand, had spent years doing exactly that kind of work professionally.
In this line of work, he was probably the best in Korea.
“If your goal isn’t to participate in management, then your goal is an exit.”
I nodded. “As a matter of fact, I’m already looking into the timing and target for a sale.”
“Have you discussed this with Hanjeong Group?”
“Yes.”
“What price are you thinking?”
“I asked Vice Chairman Ju Cheol-jin for three trillion won.”
Kim Sung-gwun let out a hollow laugh. “That’s an enormous amount.”
“Apparently he thought so too, because he turned me down.”
“Then it looks like it’s my turn.”
“If possible, I’d like to sell to KSGI.”
“At what price?”
“How does 2.5 trillion won sound?”
“……”
His face froze while the smile remained in place.
“That would work out to roughly 320,000 won per share. That’s more than fifty percent above the current price, isn’t it?”
I shrugged. “Premiums are normal in cases like this.”
He frowned slightly. “At that price, wouldn’t it be better to buy it on the open market?”
“Given the current trading volume, even buying five percent would send the price soaring.”
Only about fifteen percent of the stock was left in circulation. Buying ten percent of that was effectively impossible.
That was why neither side could move recklessly.
“Even so, do you really think that number makes sense?”
“I do think it’s a bit excessive. But if you consider how much has already been invested and what’s still to come, isn’t it more than worth it?”
Before the dispute broke out, Hanjeong Mulsan had fallen below 40,000 won. Now it had exploded to 170,000.
Its market cap had gone from around 3.5 trillion won to 17 trillion.
To put that in perspective, the holding company’s stock surge alone had raised Hanjeong Group’s ranking in the corporate pecking order from tenth to eighth by market capitalization.
“Hanjeong Mulsan isn’t just some ordinary company. It’s a holding company stuffed full of shares in other Hanjeong Group affiliates. Even if you sell only the subsidiaries that aren’t directly related, you can generate cash in a short time.”
If that cash were paid back to shareholders as dividends, the money could be recovered immediately.
Kim Sung-gwun tapped the armrest lightly with his finger, as if doing the math in his head.
“Even so, there’s a limit to how much the stock price can be pushed up. Do you really think Hanjeong Mulsan is worth that much?”
Only now, after the dispute had driven the share price through the roof, had its PBR finally climbed above 1.
But there was one flaw in that calculation.
“Among Hanjeong Mulsan’s assets are not only affiliate shares, but land as well. Affiliate shares are valued at market price, while land is valued by appraisal.”
Hanjeong Group might rank near the bottom of the top ten conglomerates, but if you looked only at its asset value, it wouldn’t be strange for it to sit around fifth.
Most companies, when they had money, went into mergers and acquisitions or reinvested it. Hanjeong Mulsan, on the other hand, had kept buying land.
Even when real estate was booming, it hadn’t developed those sites. It had simply left them idle, holding onto parcels scattered across the country that did nothing but incur taxes.
The reason was to drag down the share price until the merger went through.
What if those lands were sold at full value, or if apartments and buildings were actually built on them?
Massive profits were all but guaranteed.
“The affiliates did the same thing, buying up land they never even used. HJ Food alone has a market cap of 1 trillion won, but on paper it owns 300 billion won worth of land and buildings. If you convert that to real transaction value, it’s over 600 billion. If unnecessary land were sold and the proceeds paid out as dividends, the share prices of the affiliates would all rise at once. Then Hanjeong Mulsan’s value, holding those affiliate shares, would rise even more. And if those shares were sold and turned into dividends, they’d rise again.”
“Do you know what that means?”
I nodded. “Yes. It means the group would be dismantled.”
There was no reason to keep a collection of businesses that had little to do with one another locked together under the label of a group.
Given how disastrously Hanjeong Group had been run, every company fending for itself might actually be better for the stock price.
“Maximizing the share prices of the affiliates and selling off the stakes isn’t something that’s easy to do just because you say it is.”
“You don’t need to worry about that. We’ll help you recover the money right away.”
“How?”
“The biggest affiliate stakes Hanjeong Mulsan holds are in HJW Energy and HJ PureCell.”
Kim Sung-gwun nodded. “And?”
“I’ll line up a buyer for those stakes.”
“You think that’s possible?”
“Even if I said it was, you wouldn’t believe me anyway. But I’ll keep my promise. Buying every share at this price would be difficult, but buying only Continue Capital’s stake shouldn’t be too hard. If the group is dismantled and only the valuable parts are stripped out, recovering the investment shouldn’t be a problem.”
Kim Sung-gwun shook his head slightly. “I understand what you’re saying, but KSGI doesn’t have that kind of money.”
2.5 trillion won sounded tidy enough when spoken aloud, but in reality it was an amount that rivaled the market cap of a major conglomerate.
No matter how KSGI ranked among Korea’s top five private equity funds, it was unlikely to have that much cash sitting around.
“Money can be raised. It’s just a matter of how.”
“And if we don’t accept this offer?”
“Then I’d have to start selling on the open market right now. Or hand it over to Hanjeong Group at a reasonable price.”
As I said, the most important thing in investing was always the exit.
As long as I had money, there were plenty of places to invest it. From my point of view, I needed to turn that invested money back into cash as quickly as possible.
If Kim Sung-gwun didn’t accept my offer, I really did intend to unload it on the market.
The moment we started selling, the price would collapse, but even then we’d still walk away with about three times our money.
Once Continue Capital pulled out, the control battle would effectively end right there.
“If that’s the logic, then we could just sell all of our holdings to Elliott and walk away.”
“That wouldn’t be possible.”
“Why not?”
“Wasn’t Elliott the one that invested at the very beginning, when KSGI was first established?”
Groups that band together for mutual benefit tend to see one side pull out first when the situation turns unfavorable. But the alliance between Elliott and KSGI had held firm to the very end.
Which meant they had been on the same side from the start.
Kim Sung-gwun said nothing.
He was probably wondering just how much I knew.
“Likewise, there’s no way KSGI has that kind of money, but Elliott probably does. If not enough, you could raise more starting now.”
He neither confirmed nor denied it.
Instead, he brought up something else.
“Even if we bought all of Continue Capital’s stake, there’s still no guarantee we’d win at the shareholders’ meeting, is there? We can’t invest in something uncertain.”
Fair enough.
If KSGI bought Continue Capital’s stake for 2.5 trillion won and then lost at the meeting, both companies would be saddled with enormous losses.
Since it was the reaction I had expected, I offered another proposal.
“Then how about this?”
“How?”
“If we succeed in securing management control, we’ll sign a contract for you to buy our stake for 2.5 trillion won.”
“And if we fail?”
“Then the contract never existed, and everyone handles things on their own.”
Kim Sung-gwun drummed his fingers on the armrest.
“Can I trust that?”
“Once we’re on the same ship, none of us is getting off before we reach the destination.”
“Words alone aren’t enough.”
Hedge funds put profit first.
He was probably worried I might win his trust only to stab him in the back later.
“I won’t sell a single share until the shareholders’ meeting is over. And I’ll delegate Continue Capital’s voting rights to KSGI.”
That should be enough to ease any worries about being double-crossed.
I pressed the case further. “As you know, it isn’t easy for the board to fall into place like this.”
Chairman Ju Min-jae’s retirement, Vice Chairman Ju Cheol-jin’s trial, Director Ju Hyeon-jin’s abuse scandal, shareholders fleeing after the failed merger, the National Pension Service unable to exercise its voting rights, and so on.
Right now, a number of conditions had all conveniently lined up.
More precisely, I had made them line up.
“In the end, public sentiment always cools off with time. We won’t get another chance like this.”
In other words, this was the only chance to take Hanjeong Group.
If it succeeded, the profit would be staggering.
We’d be able to dictate terms to one of Korea’s top ten conglomerates. With Kim Sung-gwun’s ability, there was no limit to how much more could be extracted beyond the original investment.
Kim Sung-gwun sat with his fingers interlaced, lost in thought for a long while.
“Hanjeong Group has had ties with President Oh Young-hwan for a long time. If the bribery is true, they’ll try to interfere in this one way or another.”
“We’ll take responsibility for stopping that too.”
Chairman Kim Hwan-guk of the National Pension Service, Governor Jang Jin-haeng of the Financial Supervisory Service, and the rest were all President Oh Young-hwan’s people, and they had moved according to the administration’s wishes up to now.
But this time, that would not happen.
“If you join hands with us, I’ll make sure you win at the shareholders’ meeting.”
Even if we failed to wrest control away, we wouldn’t really lose much.
KSGI’s original goal had only been to secure a few board seats, both inside and outside the company, and continue interfering in management.
“Would you wait a moment?”
“Take all the time you need.”
He couldn’t make a decision this big on his own. He would need to consult Elliott Management.
I leaned back comfortably and waited.
Outside the window, the skyscrapers of Gangnam spread out before me.
When I thought about it, it was absurdly funny.
Most people were earning a few million won a month, while in a place like this, only a few dozen people were moving trillions of won.
I couldn’t even begin to guess how much money was flowing around the world. The money I had seen while working at the securities firm was probably only the tip of the iceberg.
Maybe an hour passed.
Kim Sung-gwun returned to his seat.
“Just one question.”
“Ask away.”
“Are you really that confident?”
I answered as if it were obvious. “Of course. Because I’m the one who’ll make it happen.”
After a moment’s thought, Kim Sung-gwun nodded.
“Fine. Let’s do it.”
I smiled. “Then shall we draft the contract?”
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