Yokohama Electron 11
I’m translating the chapter into the required HTML format and keeping the special content as styled blocks where the source shifts into quoted material or institutional text. After that I’ll do a quick pass for name consistency and any leftover Korean.CHAPTER_TITLE: Yokohama Electron (11)
After the acquisition of Yokohama Electron fell apart, I met with the CYP consortium’s representatives at Yuseong Electronics headquarters. Chairman Yoo Jae-ho and Sarah had met me a few times before, so we exchanged greetings without any stiffness.
“In the end, you failed to acquire it.”
Chairman Yoo’s expression was not pleasant.
He had meant to do this in earnest.
Unlike me, where David Lockhart handled most of the work and I only gave the investment orders from behind the scenes, Chairman Yoo sat at the top of the entire Yuseong Group.
For someone like him to carve time out of a packed schedule and shuttle back and forth between China and Japan meant the matter carried a different weight.
From a semiconductor company’s perspective, equipment makers were something of a mixed blessing.
They were not exactly necessary to acquire, but it was uncomfortable to let a competitor take them over.
If Yuseong Electronics had not moved first, the competitors would not have moved either. But once Yuseong Electronics stepped in, Enple, PSMC, and Kionos joined forces, and in the end the company was taken from us.
For Yuseong Electronics, it had become a rather awkward situation.
Sarah gave a wry smile.
“I never expected we’d be disqualified from the bidding process altogether.”
Chairman Yoo exhaled a long breath.
“It seems they restricted CMIC’s eligibility and dragged us into it as well.”
Japan had a history of arresting Chairman Samara and detaining him to stop Kionos from falling into SPME’s hands.
Compared to that, a mere bidding restriction was almost generous.
There was probably also an undercurrent here, one meant to keep South Korea’s semiconductor industry in check.
That was Japan for you...
Sarah looked at me and asked quietly, “Did you perhaps never intend to acquire it from the start?”
I put on a faintly flustered expression.
“Me? Why would you think that?”
“Because of how you sold off the shares so quickly this time. You could have pushed back through the PIF side or used some other method.”
Now was probably the time to say it.
I nodded.
“That’s right.”
Chairman Yoo looked genuinely taken aback, as if he had no idea at all.
“You mean you never intended to acquire it from the beginning? What exactly are you saying?”
“Exactly what it sounds like.”
“Then you entered the acquisition process without any intention of actually acquiring it?”
“Yes. Yokohama Electron is a company that should never be acquired.”
“Then why didn’t you say so sooner?”
I bowed my head and apologized.
“I’m sorry. There’s an old saying: if you want to deceive the enemy, you have to start with your allies.”
If we had only pretended to pursue the acquisition, everyone would have caught on long ago. It was precisely because we moved as though we truly intended to buy it that everyone was fooled.
“At least we made money.”
Corporate due diligence, legal reviews across multiple countries, negotiations in progress, and so on. Those alone could easily burn through at least ten billion won in costs.
And yet we still turned a profit because we had started buying in the market early.
When a major shareholder of a listed company sells their stake, the sale price is usually determined by the stock price. Put another way, the sale price itself also has a major impact on the stock price.
In order for the CYP consortium to secure a controlling stake, it had spent the past while buying 17 percent on the open market. Enple and PSMC had done the same.
The two companies were said to have bought 12 percent.
When word spread that the bid price had doubled, the stock, which had been trading around 5,000 yen, soared to 8,800 yen. Thanks to that, the market cap also rose to 17 trillion yen.
It fell after the Enple-PSMC-Kionos alliance was chosen as the preferred negotiating partner, but even so it remained fifty percent higher than before.
By quickly selling the shares we had accumulated, we made roughly four billion dollars.
Even though the acquisition failed, it had still produced a huge return.
“Money isn’t the point. What matters is that it went to our competitors.”
Yokohama Electron was one of Yuseong Electronics’ key clients. But from now on, they would have to source equipment from a competitor.
If they developed a new product, PSMC would be the first to apply it under the name of testing, and if things went badly, there was a real risk they would fall behind in the latest equipment race.
Chairman Yoo said, sounding incredulous, “So everything you said up to now was a lie?”
I shook my head.
“No. I never lied to anyone.”
Everything I had said up to that point had been true:
“Because I thought it would make money.”
“Yokohama Electron’s market share in China will explode in the future.”
“Yokohama Electron is an indispensable company in China’s semiconductor drive.”
“I believe Yokohama Electron can completely dominate China’s semiconductor equipment market.”
“It’s a great chance to hit the competition where it hurts.”
“At the very least, it can deal a fatal blow to the rivals.”
And every one of those statements had been true.
Chairman Yoo asked, unable to follow, “Didn’t you say Yokohama Electron would dominate China? What does that have to do with hitting the competitors where it hurts?”
“As you know, Yokohama Electron is indispensable to China’s semiconductor drive. Right now, it supplies equipment to China’s semiconductor fabs.”
Right after the 2008 financial crisis, semiconductor companies collapsed one after another, and Yokohama Electron was no exception. At the time, the company was in serious trouble. The group that stepped in with funding was Softbox Group.
In return, Chairman Song Gazuki strongly pushed for entry into China.
Before that, Chairman Nakazato had opposed building a factory in China.
As a Japanese company, he argued, they should not build factories in any country other than Japan.
But the company was on the verge of collapse, so it had no real choice but to enter the Chinese market.
In the end, after Chairman Song Gazuki’s persuasion, Yokohama Electron built a Chinese factory in Shanghai.
But Softbox Group was also short on cash.
Chairman Song Gazuki solved that by selling part of the Chinese subsidiary.
He created Yokohama Electron China and sold 51 percent of that company to the Shanghai joint venture.
The Shanghai joint venture was an investment firm built around Chinese sovereign capital, with the Silk Road Fund, CIC, Shanghai Capital, and others at its core.
Yokohama Electron used the money from selling the Chinese subsidiary stake to the Shanghai joint venture to build the Shanghai factory, and that lined up perfectly with the Chinese government’s need to push for semiconductor self-sufficiency.
“The reason Yokohama Electron was able to enter China early was Chairman Song Gazuki. He was already investing aggressively in Chinese tech companies like Ginibaba and Datatuxing, and he had strong ties with top Chinese officials.”
Because of those connections, they were able to enter China on the back of strong government support.
Yokohama Electron lived up to expectations, supplying equipment to semiconductor companies and becoming an indispensable part of China’s semiconductor drive.
At present, the company accounting for the largest share of its sales was none other than CMIC, China’s largest semiconductor company.
“Insight Fund is the foreign private equity firm that has invested the most in Chinese startups. Chairman Song Gazuki has so many ties to China that it would be difficult for him to act openly hostile toward it. That was why China could feel secure while he held Yokohama Electron. But what happens if it falls into someone else’s hands?”
What China feared most was America’s restriction on semiconductor equipment exports.
Even now, because of that measure, they could not even get a look at EUV equipment. What if those restrictions expanded into other areas?
“If a Japanese company like Yokohama Electron can be sanctioned, then ATAM, an American company, goes without saying. And if China can’t buy equipment from those two companies, building new semiconductor fabs becomes impossible.”
Chairman Yoo looked bewildered.
“You’re saying China won’t sit still if Yokohama Electron is taken over?”
“Exactly.”
“No, but what are they supposed to do if they don’t sit still?”
“Probably...”
When he heard me out, Chairman Yoo’s face drained with shock.
I thought back to the first cycle.
What was about to happen was something no one could have imagined.
And it was something that could never have happened anywhere but China.
Tim Keaton carefully read the English translation of the Sankei Shimbun article that had sparked the whole affair.
It was hard to dismiss it as a simple speculative report, because it contained multiple pieces of information only an insider could have known. That was precisely why such a commotion had broken out in Japan as well.
Who on earth leaked this?
Tim Keaton recalled the moves Han Miru had made so far.
He had personally gone all the way to Japan to meet with the chairmen of Softbox and Yokohama Electron in sequence. Then he had pushed the acquisition forward aggressively, even placing a high price while buying shares on the open market.
He had looked as though he was desperate to acquire the company.
If he had not been stripped of his bidding eligibility, he would almost certainly have taken Yokohama Electron without trouble.
Then a thought struck him.
What if all of this was planned?
Once the acquisition collapsed, Han Miru sold the shares as though he had been waiting for that moment. Thanks to that, he made roughly four billion dollars.
Could the goal have been to pass it off to a competitor at an inflated price?
If it had not been for Continue Capital, Enple and PSMC would not have joined the contest in the first place.
The negotiations were still ongoing, but it was true that they had paid somewhat more than they should have.
Still, taking into account the future growth of revenue from China, it was not an acquisition that amounted to a major loss.
And because they had acquired it through a joint venture, no single company had borne the burden alone. The consortium stood at 49 percent for Enple, 36 percent for PSMC, and 15 percent for Kionos.
Neither Enple nor PSMC was the kind of company that would be badly hurt by having overpaid a little.
On the contrary, by Yokohama Electron falling into the hands of Enple and PSMC, Yuseong Electronics had been put in an uncomfortable position.
Then what exactly had Han Miru been thinking?
If he had devised the operation, there had to be something else he was after, something Tim did not yet understand.
Not long after that, Tim Keaton learned that his suspicion had been correct.
And it came in the worst way imaginable.
In a corporate acquisition, due diligence proceeded along multiple lines.
Since the controlling shareholder had changed, Yokohama Electron conducted its own internal review.
Because Chairman Nakazato had run the company with such meticulous care, the headquarters itself had no problems. The issue emerged in the Chinese subsidiary.
Yokohama Electron China was a joint venture in which the Chinese Shanghai joint venture held 51 percent and Yokohama Electron held 49 percent.
The representative of that joint venture was Rupert Liu.
Born in New York, he was a Chinese-American who had worked at the U.S. semiconductor company Microk before moving to Yokohama Electron. Recognizing that he was fluent in Chinese, the company promoted him through regional sales leadership, and he later became CEO and representative director of Yokohama Electron China.
Riding the wave of China’s semiconductor drive, Yokohama Electron China’s revenue rose explosively and even surpassed the headquarters’ sales.
In recognition of those achievements, Rupert Liu received a higher salary than Chairman Nakazato himself.
But during this due diligence process, several irregularities came to light.
He had used the Yokohama Electron brand without authorization, and he had also set up a personal fund, using it to pursue private gain by giving discounts on product costs to clients who invested in it.
Once this came to light, the headquarters demanded his dismissal, and Yokohama Electron China immediately convened a board meeting to put Rupert Liu’s removal to a vote.
There were eleven directors in total at Yokohama Electron China. Of them, five belonged to the Yokohama Electron headquarters and four belonged to the Shanghai joint venture.
There were concerns that ousting the leader who had steered the Chinese business up to that point could create chaos, but the evidence was too clear to ignore.
After a long debate, the motion to dismiss Rupert Liu passed with eight votes in favor.
The new Chinese representative would likely be chosen after the controlling shareholder changed hands.
Rupert Liu reacted with fierce resistance.
“The board meeting was not convened through proper procedure. Therefore, the dismissal is invalid as well. I remain in office, so I ask all Yokohama Electron China employees to stay calm and continue focusing on your work.”
Up to that point, everyone assumed Rupert Liu would simply enter into a legal dispute with the board over his position as representative.
But then...
Something unfolded that no one could have imagined.