Firms Vulnerable to Hostile Takeovers

Overseas investors could take over the management rights of Korea’s top 100 listed corporations with just 180 trillion won, a recent study concluded.

The study said that overseas corporations have invested a total of 236 trillion won in the top 100 Korean companies, and that if they coordinate their efforts, they could take over those companies’ management rights.

According to a study of the top 100 companies with high aggregate values of listed stocks, the largest corporate shareholders own a total of 180.373 trillion won as of March 15. The value of stocks was calculated by maximizing the value of the largest shareholders by adding stocks of largest shareholders, affiliated persons, and corporations.

Only two of America’s three large investors to Korea, including the Growth Fund of America, the Vanguard 500 Index, and Pimco Total Return, would be able to raise the 180 trillion won without difficulty, however.

A management scuffle starts when a overseas investor who owns more stock than domestic shareholders, announces its intention to participate in management. Large shareholders with less than half of the firm’s total stock must hand over management rights if they fail to find a so-called “white knight,” to help them.

From this analysis, the management rights of Korea’s top 100 companies, responsible for 90 percent of Korea’s economic activities, are vulnerable to the attack of just a few large overseas investors.

There are growing concerns that many companies could face hostile mergers and acquisitions if overseas investors, who invested 236.574 trillion won in Korea’s top 100 companies, join hands.

According to the Korea Exchange (KRX), there are 48 companies among the 100 top companies in which overseas investors own more stocks than largest domestic shareholders.

The situation gets worse among the largest companies. In 18 out of top 20 large companies, overseas investors own more stocks than the largest domestic shareholders.

Therefore, there are rising concerns that speculative overseas capital could start hunting domestic companies, facilitated by the management scuffle going on for Korea Tobacco and Ginseng (KT&G).

“Sovereign Asset Management, which threatened SK in the past, cannot be classified as corporate raider, but Carl Icahn, and Steel Partners can,” said Samsung Securities in a recent report.

“With the KT&G management scuffle, more overseas investors view Korea as an easy target. Successive attacks will soon begin,” said an official at a securities firm.

“The public criticizes those who attempt to protect domestic companies. We should come up with protective measures instead of just waiting until overseas investors take over domestic firms,” said professor Lim Hyun-jin of Seoul National University.

Wan-Bae Lee TK Sohn roryrery@donga.com sohn@donga.com