[Opinion] Raiders

`Buy Korea` was a novel published last year, telling a story about the U.S. Central Intelligence Agency’s attempt to buy Samsung Electronics. In the book, the CIA has the hidden agenda of using Samsung’s next-generation chip manufacturing technology for military purposes. In fact, hostile merger & acquisition attempts quite often take place in the real world. And individual or institutional investors seeking to resell businesses they took over for higher prices are called `raiders`. In Korean, we refer to them as `business hunters` or `predators`.

Jack Welch, chairman of U.S.-based General Electric who was once widely recognized as a successful business leader, was in fact such a man. He bought and sold out some 480 firms in 16 years so as to boost the value of GE. Warren Buffet, one of the world’s most successful investors, is also a hunter. Running a large M&A fund, he buys shares in large volumes when shares of a business fall far below their real value only to sell them again when the price is high. They even threaten large shareholders to buy back their stakes for much higher prices citing the possibility of a hostile M&A, a practice called `greenmailing`. Karl Ikan, chairman of TWA, is known for his knack of ‘greenmailing’.

Korea opened its market to such hunters in 1998 after the so-called IMF crisis started. Desperately seeking to lure foreign investment, the government had no choice but to open up the market. A few large businesses such as Samsung Motor and Daewoo Motor were then sold to foreign firms. There have so far not been any hostile M&A attempts, however, in which hunters buys out large volumes of shares to gain managerial control of a company. Sometimes predators make it and other times fail since targeted businesses fight back to hold on to management. When they fail though, they bear even greater losses.

The stock market is now seeing a predator called Crest Securities. It is a British Virgin Island-based paper company running a large fund. It has emerged as the largest shareholder of SK Corp. this month after buying a 12.39% stake in the company. SK Corp. is the largest shareholder of SK Telecom and a holding company of SK Group, and high-ranking officials at the company are now on full alert. It remains to be seen whether the fund aims at managerial control or plans to greenmail, or is just trying to make gains out of trading. Still, the news proves that it is not easy for a business to maintain managerial control in this so-called global age, where capital moves freely across the world.

youngkim@donga.com