Doing well, doing good

SK Hynix has made a dramatic turnaround. In the second quarter, it generated an operating profit of 3.05 trillion won ($2.7 billion). SK Group spent 3.37 trillion won to buy the financially-stricken chipmaker in 2012. Now it’s making that much money in a quarter! The third-largest tycoon in Korea is known to pay special attention to the post-merger integration process. The leadership checks every workplace so that different cultures can maintain individualistic features while blending into one group.

SK Group Chairman Chey Tae-won decided to acquire Hynix not simply because it was a chip powerhouse. SK Telecom generates a stable operating profit of 1.5 trillion won annually. But a chipmaker’s performance depends on a highly volatile market. Hynix, whose memory chip business relies largely on PC demand, can earn a lot during semiconductor booms. It nearly went insolvent in 2002 and 2009 during market slumps. Chey thought that combining the two could ensure both stability and growth. Despite ups and downs, Hynix maintained second place in the dynamic random access memory (DRAM) market with a share of 23.4 percent after Samsung Electronics’ 41.6 percent.

SK paid nearly 1 trillion won more than its worth to acquire Hynix after its executives toured the factory site. The president who spearheaded the acquisition recalled how he had been impressed by the air of “hungry spirit” that kept the production site vibrant even when the Icheon chip complex was on the brink of bankruptcy.

Hynix employees did what they could to keep the factory running without capital. To save money for needed upgrades and construction, chip engineers heated and dried concrete by hand to build new lines. They did not waver even when the fate of the company was in peril.

In making the purchase, SK paid 66 percent of the acquisition fee, or 2.34 trillion won, to buy new shares issued by Hynix. The capital immediately went into new facility investment. It bore fruit in the following year as chip demand began to pick up. Hynix turned out operating profits of 3.3 trillion won in 2013, 5.1 trillion won in 2014, 5.3 trillion won in 2015, and 3 trillion won in 2016.

If Hynix is a success story, Daewoo Shipbuilding and Maritime Engineering (DSME) is the opposite. The market was shaken on Nov. 3, 2015 after a media outlet speculated that SK could be buying DSME, which is owned by state-run Korea Development Bank. The news sent DSME stock up more than 20 percent that day — while wiping out 4 trillion won in the market capitalization of SK.

SK issued a statement denying the rumor. But a senior vice president at the conglomerate later admitted that the group discreetly studied acquiring a controlling stake in DSME from the government, which has attempted many times to sell the elephantine shipbuilder.

In July 2015, DSME was charged with accounting fraud after window-dressing losses of 3 trillion won. Chey, who had been in prison for misappropriation of funds, was released in August through a special pardon from President Park Geun-hye. At the time, SK was cash-rich thanks to Hynix. In 2009, it even formed a consortium with Posco to acquire the KDB stake in DSME. In show of gratitude for releasing Chey before his prison term, the conglomerate considered taking over the embattled DSME.

SK Group’s team of M&A experts, however, nixed the idea after visiting DSME’s dockyard in Geoje, South Gyeongsang. The union was too assertive and its rigid culture would not blend well with SK’s, said one official. What were true dealbreakers were the scenes of shipyard workers in uniform playing poker before their work was over.

The team was appalled at the sight of laxity in a shipyard that needed more than 4 trillion won in a fresh public bailout to keep from going under. A few days later, a newspaper carried an article on the moral hazard of any acquisition of the shipbuilder. The reporter had witnessed senior union officials playing poker. They claimed they did not gamble on the job, but DSME lost its chance to become privatized.

Mid-sized food maker Ottogi came into the limelight after its CEO was singled out by President Moon Jae-in in a group invitation of top chaebol leaders to the Blue House, making the company a kind of poster boy for an exemplary enterprise. Its good deeds — the owner willingly paid inheritance tax, froze ramen prices and employs workers on a permanent basis — were highlighted. But what determined the fate of Hynix and DSME were not their owners, but their staffs.

A company must be judged not only on its ethics, innovations and business performance, but also by its employees.
In Korea, too much focus is given to the CEO in categorizing good and bad enterprises.

Would the Blue House invite someone who is a billionaire but stingy in donations, leases a new luxury car every six month to avoid having to get a license plate, enslaves 500,000 subcontractor workers — who are paid much lower than his 100,000 employees — and pays as little tax as possible by using tax havens? It wouldn’t. He would have been stigmatized and shunned as an evil and greedy businessman by the president and the public.

That man was Steve Jobs of Apple.

JoongAng Ilbo, Aug. 2, Page 31

*The author is a senior editorial writer of JoongAng Ilbo.

Lee Chul-ho