A decade-long feud that split one of South Korea’s most powerful families now puts a former Girl Scout leader against the nation’s second-wealthiest man in a $2.5 billion fight for the country’s biggest construction company.
Hyun Jeong Eun, who jumped from housewife to head of Hyundai Group after the 2003 suicide of her husband, the favored son of founder Chung Ju Yung, is trying to rebuild an industrial empire splintered by family infighting, bad debts and an ill- fated effort to expand into North Korea. Against her is Chung Mong Koo, the founder’s eldest surviving son and chairman of Hyundai Motor Co., a separate business that is the nation’s largest carmaker.
The two go head to head this week bidding for a controlling stake in Hyundai Engineering & Construction Co., the cornerstone for the Hyundai empire before bad debts left it in the hands of creditors. Failure to win would not only dent Hyun’s plans to expand the group, it could cost her control of her biggest unit, Hyundai Merchant Marine Co., which is part owned by Hyundai Engineering, said fund manager Chang In Whan.
“Hyundai Group desperately needs Hyundai Engineering and they will push forward to make it happen as if their life depends it,” said Chang, who oversees equivalent to $9.4 billion of assets at KTB Asset Management Co. in Seoul, including shares in Hyundai Motor and Hyundai Engineering. “Hyundai Motor has the biggest advantage because the focus is going to be about who can come up with the money.”
Hyundai Motor had 7.3 trillion won ($6.4 billion) of cash and assets equivalent to cash at the end of June, while affiliate Kia Motors Corp. had another 1.9 trillion won, according to financial statements. The combined cash and cash equivalents at Hyundai Group’s main units -- Hyundai Merchant, Hyundai Elevator Co. and Hyundai Securities Co. -- totaled 1.13 trillion won. The disparity is also reflected in personal wealth. Chung Mong Koo is worth at least $5.4 billion according to Bloomberg data. Hyun is worth at least $115.7 million.
The banks will auction off their 35 percent stake, worth at least 2.9 trillion won, with final bids due by Nov. 12. Hyundai Engineering shares have gained 3.4 percent so far this year.
“This is pretty much a fight between a whale and a shrimp,” said Cho In Karp, research head at Heungkuk Securities Co. “Hyundai Motor will most likely rise as the winner. The automaker is in a better position to raise money.”
Hyun was unavailable for an interview, said a Hyundai Group official who declined to comment further. A Hyundai Motor Group spokesman also declined to comment.
Hyundai Merchant Stake
The winner of Hyundai Engineering would gain its 8.3 percent stake in Hyundai Merchant, South Korea’s second-largest shipping company, which contributed 58 percent of Hyundai Group’s sales last year.
Combined with the 25.5 percent stake held by Hyundai Heavy Industries Co., the world’s largest shipyard, and the 5.08 percent owned by KCC Corp., founded by Mong Koo’s uncle, who tried to block Hyun’s succession, the total would almost match the 40 percent owned by Hyun and Hyundai Group, according to first-half financial statements from the companies. Another 5 percent is held by the shipping line and its employees.
“If Hyundai Group fails to buy Hyundai Engineering then the whole managerial control of the group’s unit could be challenged because of the shareholding structure,” Chang said.
Hyundai Merchant in turn is the biggest shareholder in 7 of the 12 Hyundai Group units, so loss of the shipping line could cause Hyun to lose control of the whole group in a domino effect, said Chang.
While Hyun may be in a weaker financial position to bid, she is appealing to the sentiment for Chung Ju Yung, who is widely respected in Korea for building the Hyundai businesses, and her late husband Chung Mong Hun, his chosen successor.
Hyundai Group started airing TV advertisements on Sept. 21 depicting the late Chung Ju Yung and Chung Mong Hun, that say: “it was everything to the father, it was everything to the son. Hyundai Engineering, Hyundai Group will defend it.”
That sentiment has its roots back in 1932, when a 17-year- old Chung Ju Yung stole a cow from his father’s farm in what is now part of North Korea and drove it to the south, where he sold it to start a business. In 1947 he set up Hyundai Engineering, which grew into a group making cars, ships, semiconductors and steel. The flagship company built the nation’s first expressway, linking Seoul and the port of Busan, and won the country’s first overseas construction order in Thailand in 1965.
Chung Ju Yung never lost his desire to reunite North and South Korea and during the famine in the North in 1998 he herded 1,000 cattle across the border, saying it was repayment for the one he stole. The stunt captured the public imagination and opened the way for Chung to set up the $463 million business in the North’s Mount Geumgang region. It also set the stage for the first summit between North and South in June 2000, when Kim Dae Jung traveled to Pyongyang to meet Kim Jong Il.
North Korea Tourism
The following year, Chung Ju Yung died at the age of 86 and Chung Mong Hun took over the mantle of the North Korean projects. Two years later, as relations soured with North Korea over its nuclear program, the younger Chung jumped from his 12th floor office window after being charged in connection with $450 million of illegal payments to the North.
Hyun became chairwoman and she too devoted much of her time to the North Korean tourism business, according to the group.
“I believe it’s my mission to rebuild Hyundai Group and continue on the North Korea projects started by the late Chung Ju Yung,” Hyun said in August 2004 on her website. “I will do my utmost to restore Hyundai Group’s earlier glory.”
The project around Mt. Geumgang, or Diamond Mountain, includes about 60 kilometers of the eastern coast. There are hotels, hiking trails, an 18-hole golf course, a spa, a cultural center, where a North Korean circus troupe performed, and a branch of Pyongyang’s “Okryu Restaurant” serving its signature “Pyongyang cold noodles.”
“Hyun pushed forward to get what she wanted, there was no room for compromise,” said Rhee Bong Jo, who first met Hyun in 2004 at the Mt. Geumgang resort when he was vice unification minister. “She had taken the lead in the North Korean projects and succeeded in resolving some issues and winning new projects.” In August last year Hyun met Kim Jong Il after helping secure the release of a Hyundai Group employee accused of criticizing the North Korean leader.
The political climate deteriorated after the South accused the communist regime of torpedoing its Cheonan warship in March, killing 46 sailors. The North denied the accusation and in April said it will seize some South Korean assets at the Mt. Geumgang resort and a find a new project partner to replace Hyundai.
While politics have wrecked the North Korean venture, Hyun did oversee a revival in the group’s other businesses. Since she took over, sales have almost doubled to 10.5 trillion won last year, led by affiliate Hyundai Merchant. At Hyundai Elevator, the country’s biggest elevator-maker, sales have doubled.
In April this year, Hyun set a target of increasing the group’s sales to 70 trillion won in 2020 by strengthening its three main businesses -- logistics, finance and infrastructure.
“Acquiring Hyundai Engineering is something we cannot give up because it will be a positive source of impetus for the group’s future,” Hyun said in a speech to employees on Jan. 5.
Hyun, 55, was born in Seoul on Jan. 26, 1955, as the second daughter of four. Her father, a one-time employee of the Bank of Korea, became chairman of Hyundai Merchant after it bought out a shipping business he founded.
She majored in sociology at the Ewha Womans University and studied human development at Fairleigh Dickinson University in the U.S., according to her website.
She met Chung Ju Yung at a ship christening ceremony in Ulsan in January 1975 and he instantly wanted her to marry into his family, according to a book published by Hyundai Merchant. A few months later, Chung Ju Yung arranged for Hyun to meet his fifth son, Chung Mong Hun, while he was on a short leave from military service. The two married in July the following year.
“I found out years later that it was the Honorary Chairman Chung Ju Yung that was the matchmaker,” Hyun said in an interview on her website.
After her marriage, Hyun became a housewife, bringing up her two daughters and a son and working as a director of South Korea’s Girl Scouts. She is on a charity committee in Seoul for the Red Cross and lists her interests as movies, especially European ones, and dancesport.
Her husband’s death catapulted her into a position where she was named among the World’s 100 Most Powerful Women by Forbes magazine in 2008 and 2009.
“She has successfully turned herself from a housewife into a CEO, overcoming a lot of skepticism about her lack of work experience,” said Chang Pilwha, a professor in the department of women’s studies at Ewha Womans University in Seoul. “She has proven herself by overcoming difficulties one by one.”
Her husband took over the tourism and other North Korean projects after his father’s health deteriorated in 2000 and was named as the elder Chung’s successor that year over his older brother Chung Mong Koo, sparking what became known as the “rebellion of the princes.”
Mong Koo, chairman of Hyundai Motor since late 1998, accelerated a plan to spin off the automaker and its affiliates. Two years later, Hyundai Heavy, whose biggest single shareholder is sixth son Chung Mong Joon, also broke away from the group.
Chung Ju Yung’s oldest son died in a car accident in 1982 and his fourth passed away in 1990. The third son is honorary chairman of Hyundai Department Store Co., the seventh is chairman of Hyundai Marine & Fire Insurance Co. and the youngest is head of Hyundai Venture Investment Co.
Hyundai Engineering said in February it aims to boost overseas orders to $12 billion this year from $4.5 billion in 2009. Its net income climbed 22 percent to 456.6 billion won and sales rose 28 percent to 9.28 trillion won last year.
Failure to defeat her brother-in-law and gain control of the construction business may end Hyun’s dream of restoring Hyundai Group as South Korea’s leading business.
“She’s gone through a lot of difficult times since her husband’s death,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “But nothing will compare with the battle she is about to embark on.”
To contact the editor responsible for this story: Neil Denslow at firstname.lastname@example.org