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Controversy over Six Unions’ Move to Acquire Company Stock

Controversy over Six Unions’ Move to Acquire Company Stock

Posted October. 19, 2005 06:09,   


The labor unions of six companies that lost ownership to creditors during the Asian financial crisis due to insolvency- Hyundai Engineering and Construction, Ssangyong Engineering and Construction, Daewoo Engineering and Construction, Daewoo Shipbuilding and Marine Engineering, The Korea Express, and LG Card- have joined forces to acquire company shares through an employee stock ownership association.

Though the labor union of Daewoo Shipbuilding and Marine Engineering has revealed its intention to repurchase stocks on a company basis, this is the first time that the unions of several companies have collectively taken action.

Thus, the government and creditors’ plan of recovering public funds by selling these companies for an appropriate price has been hampered, and it is expected that there may even be disruptions in selling the companies.

It was confirmed on October 18 that the leadership of the six unions met once a week from early last month at the head office of Bridge Securities at Jung-gu, Seoul, to discuss this issue.

Moreover, the group is expected to grow larger as Hynix Semiconductor’s union has expressed its willingness to participate, and the labor unions of Korea Exchange Bank and KEB Credit Card are considering participation.

These companies improved their performance with financial assistance from the government and financial companies into which public funds were, and they share the commonality that the government and creditors were planning to sell their shares.

Chairman Jung Chang-doo of Daewoo Engineering and Construction’s labor union stated, “Meetings are being held to pursue our goal of securing the association’s participation in the stock acquisition. To the government and creditors, we will jointly demand a clear statement that a consortium must be formed with the association as a condition for selling shares and that speculative capital be excluded with thorough investigation regarding the origin of the acquisition fund.”

The labor unions are planning to officially announce these facts at a joint press conference on October 27.

Each company’s employee stock ownership association aims to acquire about 20 percent of the stocks to be sold.

These unions are planning to first use the employees’ retirement fund for capital and then borrow money from financial companies through the leveraged Employee Stock Ownership Plan (ESOP) if lacking funds.

It is assessed that labor unions seek to acquire stock because of concerns that employment will become unstable due to post-sale restructuring.

Chairman Hwang Won-sup of LG Card’s union insisted, “ESOP is to boost the employees’ loyalty to the company and prevent a hostile M&A. It is not to acquire management rights or intervene in management decisions.”

However, much controversy is expected as the unions’ movement is in direct conflict with the government and creditors’ approach as they seek to sell the companies together after adding a premium for management rights.

The government and creditors believe that they will not receive an adequate price for the companies because the acquirer would feel pressured if the employee stock ownership association holds many shares.

An official of the Korea Asset Management Corporation expressed concern, “If the companies are not sold as a lump with a management right premium, it could be difficult to recover the public fund or the amount recovered could significantly decrease.”

Jin-Young Hwang Suk-Min Hong buddy@donga.com smhong@donga.com