Episode 6: I Found My Right Arm!
The rooftop of Hanguk Jeonseon had grown dark without anyone noticing. It was quiet, but filled with the burning passion of two men.
“As you know, Manager Gim, there’s no future in sticking solely to the wire business. In the past, the wire industry was the vanguard of Korea’s industrialization, but Korea is no longer a high-growth nation. The time is coming when we’ll have to push overseas just to maintain the status quo. Moreover, having been pushed from first place in the wire industry, we’re now hard-pressed just to keep up with our rival, NG Jeonseon.”
“Yes, although NG Jeonseon has split off, it’s still part of the larger NG Group. You can’t ignore the support from the NG Group, one of the nation’s top four conglomerates. The NG Group is famous for being tightly knit among its own, isn’t it? Even if they change the name to NS Jeonseon next year, at the end of the day, it’s still the NG family.”
“Yes, exactly. That’s why I’m thinking of raising the profitability of our main wire business somehow and growing it only enough to become a cash cow generating about two hundred billion won annually. Of course, that won’t be easy either, but it should be possible, right?”
“Yes, something on that scale should be possible with management’s capabilities. However, we’ll definitely have to pour effort into R&D like NG Jeonseon. Right now, President I Seong-ho is downsizing the existing research organization and focusing only on M&A, so…….”
“I’ll resolve that gradually once I’m inside the company. The more power I have, the more solvable that problem becomes. Anyway, the key is new business. Whether through M&A or starting from scratch, we have to pursue new business to grow.”
“Yes, of course. What kind of business is it?”
Whoa, the overly bright, glistening look in Manager Gim’s eyes is quite burdensome. Getting such a heated gaze from another man is a bit much.
“I’m thinking in terms of four major categories. First, IT services. Second, Mainix semiconductors. Third, secondary batteries. And fourth, bio.”
“I can understand IT and bio, but Mainix and secondary batteries? Mainix is too big for us to acquire, and the secondary battery market was already entered by Saseong SDI, NG Chemical, and STC three to four years ago with massive capital and large-scale new equipment. There’s absolutely no room for a latecomer like us to squeeze into a market already dominated by the nation’s top four conglomerates. And that’s not all. We lack both technology and capital. The barriers to entry are too high. Acquiring Mainix alone would completely deplete all of our liquidity, and you mention secondary batteries? That’s the perfect recipe for bankruptcy. Don’t tell me this was your vision, Mr. Seho?”
Whoa, whoa—Manager Gim, calm down. He’s really fired up. Was it because until a moment ago his expectations for my vision had pierced the sky and reached the stratosphere?
Hearing my words that seemed utterly impossible to realize, it looks like all that expectation has turned straight into disappointment. But come on, it may be difficult, but all of it is possible. Just trust me.
“Manager Gim, please calm down and hear me out. A businessman shouldn’t get worked up so easily. You must always consider the other party’s intentions and what lies beneath them.”
“Ah… I’m sorry. I was truly hasty there. I’ll listen carefully.”
Fortunately, he’s persuaded quickly. It seems my effort to make him realize earlier that I’m not an ordinary, naive twenty-three-year-old wasn’t wasted.
“Now, listen. Those four categories are fields I’ve decided to pursue ultimately. Naturally, I’m not saying we’ll do them right away. We’ll wait for the right time. And it won’t even take that long.”
Of course, in the process, I’ll have to shoot down all the absurd M&A deals that I Seong-ho will try to push through and protect the company’s capital.
“First, IT services. This business doesn’t require much capital. You need brilliant ideas, insight that pierces through the trends of the times, and the talent to support that. Of course, you need some capital, but we have that much, don’t we? I have many ideas in this area. I’ll move on this the fastest, and if I can’t convince the management, I’ll push it through using all my personal funds. Because I’m certain.”
That’s right. The coming years are the time to acquire or establish companies like Coconut, LAVER, Pilleobiseu, and Creston at dirt-cheap prices. I absolutely can’t miss this. It’s a shame that Maxon isn’t a company that takes investments. I can’t wait until its Japan listing either. I’ll just keep an eye on this one.
“Next, Mainix semiconductors. Of course, it’s a big company. But its deficit last year was one point seven trillion won, wasn’t it? Since the IMF crisis, its cumulative deficit has exceeded ten trillion won.”
“That was true until last year, but Mainix is recovering from this year onward. That’s why the stock price rose significantly from last year’s low. This year, it’s estimated to post net profits exceeding one trillion won. By the time the creditors put it on the market, the price will have risen considerably. Think about it. If it posts deficits, they’re in the trillions—we can’t bear that, which is a problem. If it turns a profit, the price will have risen so much that we won’t be able to afford the acquisition, which is also a problem. It’s a problem no matter what happens.”
That’s right—starting this year, Mainix will post trillions in annual net profit and do extremely well going forward. Of course, the creditors’ noses will be piercing the sky, but Mainix won’t be able to escape the financial crisis either. In 2008, when Mainix suffers losses exceeding four trillion won and its stock price falls into the abyss! That’s when I’ll break the creditors’ pride and acquire Mainix at the lowest possible price.
Well, I can’t exactly tell Manager Gim that a financial crisis will come in 2008, so I’ll just gloss over it. There’s no way I can give up on Mainix, which will generate tens of trillions in profits after 2010.
“Right now, Mainix’s market cap is about five trillion won, right? Since the creditors hold forty percent through debt-to-equity swaps, that’s two trillion. If they demand about a fifty percent control premium on top of that, it’ll cost around three trillion?”
“You’ve done a lot of analysis? Yes, that’s accurate. But now that it’s returned to profitability, if the stock price rises further, the amount demanded by the creditors will keep increasing.”
“It’s because I used to invest in stocks a lot with my friends. Mainix was always the target of our analysis. Anyway, the semiconductor industry is riding a super-cycle, so there’s no guarantee Mainix will stay strong forever. Mainix has normalized from a mess, so it’s turning around from this year, but Saseong Electronics has been strong all along. We’ll gather our ammunition while waiting for Mainix’s cycle to turn down. The acquisition cost won’t differ much from the current level.”
“Even if it’s no different from the current level, that’s three trillion!”
The ST Group, which acquired Mainix in 2012, invested over three trillion won, but if we grab it in 2009, even accounting for a rights issue to strengthen capital, two trillion should be enough, right? And I’m confident I can make that much money by then. But for now, I need to pay lip service.
“We’ll form a consortium. Mainly financial investors. We’ll also recruit strategic investors, mainly semiconductor vendors. We currently have six hundred billion won in cash, and if we sell the Anyang site, we can easily get over five hundred billion. If necessary, we can sell the Deokyu Resort and the SBUs too. We’re prepared to endure rights issues, BWs, and CBs.”
“If we strip the company’s funds down to its underwear, it’s possible, but is Mainix worth going that far?”
“Forget the Mainix that posted cumulative deficits of over ten trillion won until last year. Look at Saseong Electronics’ semiconductor division. Mainix is the world’s number two in semiconductors after Saseong Electronics. And the semiconductor market isn’t one where the first place takes everything. Production capacity has its limits. If we acquire Mainix, as long as semiconductors sell, we can claim the second-largest slice of the pie in the world after Saseong Electronics.”
I paused for a moment and looked at Manager Gim Yun-sik. Manager Gim Yun-sik, who would become my right arm, had to become a steadfast supporter of mine. If he showed even the slightest resistance to my orders going forward, I wouldn’t be able to accomplish anything in the end.
“I guarantee it. The semiconductor market will continue to grow. Going forward, all devices will be digitized and computerized. Demand for servers will keep increasing. In homes, in schools, in companies—there’s nowhere they won’t be used, and they have to be replaced periodically. There may be short-term ups and downs, but for the number one and two companies, those fluctuations will actually be opportunities. We must get Mainix in our hands.”
“I now clearly understand what you mean. In the end, the key is to definitely protect the company’s liquidity until the time you spoke of arrives. From what I heard in the management planning team, President I Seong-ho seems to be trying to expand the company focusing on construction going forward.”
I could see the addressee honorific in how he referred to I Seong-ho! In Manager Gim’s mind, he must unconsciously consider me a superior to I Seong-ho.
“Yes, exactly. We should avoid visionless, unnecessary M&A and pursue M&A that is truly profitable and has infinite growth potential. We’ll grow the wire business steadily so it can become a cash cow. Construction is not in my plans. I intend to expand into the four categories I mentioned earlier.”
“IT services seem more than feasible. However, if we acquire Mainix, we won’t have the capacity to do anything else for several years.”
“I told you we’ll acquire Mainix as it transitions from crisis to prosperity. By then, sufficient funds will come out of Mainix. They lost over ten trillion won after the IMF crisis, right? That means when prosperity comes, they can earn over ten trillion too. Look at Saseong Electronics’ semiconductor division. As for secondary batteries, I don’t mean to compete with NG Chemical and Saseong SDI right away. Our goal is to localize materials like cathode materials that are currently imported from Japan, and we’ll pursue this long-term. Secondary batteries have no choice but to keep developing. They’ll go into all electronic devices going forward, and electronic devices will keep evolving into new forms.”
The truth is, if we rake in the money with Mainix, we’ll take the entire secondary battery division from NG Chemical. We have to create Hanguk Energy Solution, not NG Energy Solution.
“Bio would be new drugs… but the success rate is so low that there are no success cases in Korea yet. It’s good for playing with stock prices, but that’s not what you want.”
“Exactly. I’m thinking more in terms of biosimilars than new drugs.”
“Biosimilars?”
“It sounds unfamiliar, right? Generic drugs are copies of chemically synthesized pharmaceuticals, and that’s what the majority of our domestic pharmaceutical companies do. It’s a red ocean. Biosimilars are copies of biopharmaceuticals. They’re incredibly difficult compared to generics, but because the original already exists, the likelihood of success isn’t as low as with new drugs. They’re worth investing in. This is what you could call a blue ocean.”
“You’re already applying blue ocean strategy to management?”
Ah… did the book on blue ocean strategy come out this year? I should have studied management harder before the regression. I left everything to I Seong-ho, so…….
“A manager must always be sensitive to new knowledge and thirsty for it. So, what do you think? This is my vision for Hanguk Jeonseon. It’s quite different from President I Seong-ho’s vision, isn’t it? Manager, will you become my right arm?”
Manager Gim Yun-sik gazed into my eyes for a moment, lost in thought, then smiled and bowed his head.
“Allow me to greet you again, Chairman. I am Manager Gim Yun-sik of the Management Planning Team. Though I still have much to learn, I will do my humble utmost to serve you. From now on, when it’s just the two of us, I will truly treat you as the Chairman of the Group.”
Thank goodness. I’ve finally secured my right arm. I need to find the slush fund, establish paper companies, and there’s so much to do; now I can finally begin in earnest.
“Chairman, there is something I must tell you. President I Seong-ho ordered me to report all of your and my activities directly to him from now on. Perhaps President I Seong-ho unconsciously feels wary of you, Chairman. I will handle the reports myself, excluding anything of importance and reporting only routine matters.”
Just as I thought. He probably isn’t keeping me in check just yet, but he wanted to know my every move. Too bad—starting now, you’ll only be getting false information.
Now, only the important tasks remain.
“Manager Gim, there is something very important that you must do as the highest priority.”