Massive Buy-off of HE Stocks Seems Not for M&A

Massive buy-offs of Hyundai Elevator (HE) stocks might be for profiting over stock-trading instead of M&A scheme

As Hyundai affiliates went out to proactively defend the managerial right of Hyundai Elevator, it will be revealed any time soon what foreign investors have bought the company stocks in huge amount.

A persuading analysis is that the voracious buyers must be general investors who expect handsome gains through changing hands rather than planning hostile merger and acquisition.

Six to seven funds appreciated the HE`s corporate value.

“Foreign investors who massively bought stocks of Hyundai Elevator were six to seven funds of European and Asian bases”, said a source at the Department of Foreign Institutional Clients of Samsung Securities, which is a major brokerage firm for foreign investors of Hyundai Elevator. He also noted, “One of them is known to have bought over 5% of the equity of Hyundai Elevator.”

He went on to say, “This can possibly the so-called `greenmail`, referring to reselling the purchased stocks of a company after securing overwhelming managerial influence, but, in my knowledge, they didn`t buy the stocks with the intention of M&A in the first place.”

Anybody who buys over 5% of a certain stocks of a company should publicize the transaction within five days of purchase. According to the law, the foreign buyers of the stocks will be identified in early next week.

Foreign holding of the company`s equity increased to 11.81% yesterday as 33,780 shares were sold to foreign investors. Stock price of the company has hit the upper limit for six consecutive days to ascend to 28,750 won per share.

Hyundai Family volunteers to save the company off the hook.

With the managerial right threatened, Hyundai Elevator asked for help of Hyundai affiliates yesterday.

Subsequently, the company sold off its own 430,000 shares in holding to five to six Hyundai affiliates including Hyundai Cement, Hyundai Department Store, and Korea Flange, thereby increasing the Hyundai Group`s affiliates secured equity with voting right from 28 to 35.6%. Combined with shares, bought on different occasions, the group`s total equity with voting right in the company reached 42% as of August 14, explained the Hyundai Group.

“The stock-buying by Hyundai affiliates is a measure of protecting Hyundai Elevator`s managerial right just in case as well as an promising investment”, said the Group, adding, “Once requested, Hyundai Motor Company will not be able to resist the attractive investment opportunity as well.”

In most cases, a back-up from affiliates leads to drop in stock price of the company, whose managerial right is threatened. Yet, not this time. On the contrary, Korea Flange saw its stock price soar 6.67% while stock prices of Hyundai Department Store and Hyundai Cement inclined by 5.18% and 2.16% respectively.

Record high performance was achieved for the first half of this year.

Hyundai Elevator announced that its revenue posted at 172.2 billion won for the first half of this year, a 17.1% increase from 147.0 billion won from the same period last year. Operating income and net income also grew 63.6% and 118.0% year-on-year to record 21.6 billion won and 13.3 billion won respectively. Hyundai Elevator, with the second largest market share in Korea, reported huge loss in performance last year, but this largely attributed to a 81.2 billion won-loss in selling off shares of Hynix. Recently, business of the elevator industry in domestic markets has been relatively vivid. An insecure factor is a possibility of rising competition as foreign competitors, such as Thyssen Krupp AG of Germany, are gearing up for entering Korean markets.

Suk-Ho Shin Jong sik Kong kyle@donga.com kong@donga.com