Hyundai Defends Its Management Rights

The seven-month-long conflict over the management rights of Hyundai Group and Keumkang Korea Chemical Co. (KCC) has ended with the absolute triumph of Hyundai Group.

Jung Sang-young, the honorary chairman of KCC, had started an aggressive merger and acquisition move against the Hyundai Group, stating “I will regain the ‘Jung’ family’s rights against the Hyundai Group,” but the attempt was thwarted due to an illegal stock acquisition ruling and a lack of moral justification for the merger.

Because of this incident in which an uncle and daughter-in-law quarreled over management rights, KCC and Honorary Chairman Jung’s image has been largely damaged; there will be other bad effects as well due to the wasted efforts of both companies.

--Hyundai wins ballot count

As experts predicted, Hyundai Group gained a total victory over KCC at the general meeting of stockholders of Hyundai Elevator held on March 30.

In a vote that 64 percent of all enfranchised stockholders participated in, the bill to adopt Hyun Jung-eun as an executive was passed with 77.8 percent for and 22.2 percent against. KCC then withdrew its proposal to appoint its chairman, Jung Mong-jin, as a new executive in the middle of the voting process, and its representatives walked out of the room.

Although KCC took over the right to consult and decide on a meeting from other Hyundai Group branch companies, it did not exercise that right because the ambience of the meeting was on Hyun Jung-eun’s side.

When a court ruled that 7.5 percent of KCC’s shares had to be excluded from the calculation for the right of consultation and decision at the stockholders’ meeting on March 29, the scales began to tip in favor of the Hyundai Group. In addition, Hyundai Heavy Industry and Hyundai Department Store failed to attend the stockholder meeting, leaving KCC without allies.

On the other hand, Hyundai Group stood together against the offensive of KCC, even securing some of the small stockholders’ credentials for the meeting.

--KCC’s merger process and reasons for its failure

The conflict started in August 2003 when the deceased Jung Mong-hun suddenly committed suicide. Due to the unexpected void in management left behind and a US-based investor’s purchase of 10 percent of Hyundai Elevator, which used to be a holding company of Hyundai Group, the whole management situation of the Hyundai Group started to waver.

Faced with this difficulty, KCC’s honorary chairman Jung mobilized nine branch companies of Hyundai Group in order to secure the management rights of Hyundai Group by purchasing 16.2 percent of Hyundai Elevator’s shares.

In the end of October 2003, as the deceased Jung’s wife, chairwoman Hyun did not comply with his advice, KCC’s Jung officially declared a “merger with Hyundai Group” on November 14 2003, by secretly taking over the shares of Hyundai Elevator. The supporter had suddenly transformed into the enemy.

But under suspicion of violating the rule that states a company must report five percent of its whole share to the market, the government ordered KCC to dispose of the 20.78 percent of KCC’s share in Hyundai Elevator. In addition, KCC did not give a satisfactory moral justification for the merger. Those two things exerted a decisive negative influence on KCC’s attempt.

--What about the future of Hyundai Group and KCC?

Chairwoman Hyun has assumed the seat of executive in Hyundai Asan, Hyundai Merchant Shipping, and Hyundai Elevator in same time, trying to declare the so-called “Hyun Jung-eun’s regime.”

“By securing a stable management system, I will accomplish a brand-new take-off for Hyundai,” remarked Hyun.

It is expected that by making use of this victory as momentum, Hyun will entrust the administration of Hyundai Group to a professional CEO, and concentrate on the business with North Korea.

On the other hand, KCC seems set to sell all its shares in Hyundai Elevator and to be through with this business.

“We accept 100 percent of the outcome of the shareholder’s meeting. In order to prevent any damages to the small shareholders, we will cooperate with Hyundai in the process of the stock offer,” disclosed one KCC executive, Kim Moon-sung.

Do-Young Kim nirvana1@donga.com