SK Telecom Co., South Korea’s largest mobile-phone operator, and units of shipping magnate Kang Duk Soo’s STX Group fell in Seoul trading after they disclosed plans to bid for Hynix Semiconductor Inc. (000660)
SK Telecom, the phone unit of billionaire Chey Tae Won’s SK Group, retreated 3.7 percent to 144,000 won, falling for a fifth day to the lowest closing level since March 2003. STX Offshore & Shipbuilding Co. lost 4 percent, while STX Corp. and STX Engine Co. both fell 2.9 percent.
Morgan Stanley cut its stock rating on SK Telecom today, underscoring a concern the nation’s business groups are reviving over-expansion practices that led to a financial crisis in the late-1990s. The biggest sale of a Korean technology asset since 1999 will pit Chey against Kang for control of the world’s second-largest maker of computer-memory chips, a sector marked by boom-and-bust cycles and billions of dollars in investments each year.
“Investors are worried about the deal given the target offers no foreseeable synergies for either bidder,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $29 billion. “Sentiment on those stocks will be weak until a decision” on the successful bidder, he said.
SK Telecom and STX Group said July 8 they submitted letters of interest. Korea Exchange Bank, which is leading the financial institutions seeking to unload their 2.4 trillion won ($2.3 billion) Hynix stake, said it expects to receive final bids by the end of August and sign a deal by year-end.
Return of the Chaebol
Daiwa Securities Group Inc. last week cut its share-price estimate on SK Telecom by 6.1 percent to 162,500 won, and Daishin Securities Co. today reduced its stock-price projection by 15 percent to 200,000 won.
While supporters praise the family-run Korean business groups known as chaebol for pulling the country out of poverty after the 1950-1953 Korean War, the International Monetary Fund cited the debt-driven model as part of the reason the nation’s economy landed in a financial crisis at the end of 1997.
The stake of about 15 percent being sold would make the buyer the biggest shareholder in the chipmaker. The disposal would also be the largest share sale of a Korean technology company since July 1999, when Hynix bought a majority holding in Hyundai Microelectronics Co. for 2.56 trillion won, according to data compiled by Bloomberg.
SK Group, whose roots stretch back seven decades to when it was a textiles maker, has grown into the nation’s third-largest chaebol with 86 units sprawled across energy, financial services and telecommunications. Chey’s wealth is estimated at about $2 billion, making the 50-year-old South Korea’s seventh-richest man, according to Forbes magazine.
SK Telecom said it’s seeking to diversify its businesses by buying Hynix and will make a final decision on whether to proceed after “thorough reviews.” STX, which plans to team up with a unidentified Middle East sovereign wealth fund, expects the deal to help reduce dependency on shipping and shipbuilding, according to Vice Chairman Lee Jong Chul.
Hynix wouldn’t be SK Telecom’s first investment in a business that strays from its main operations. In 2003, the company bought a stake in Posco (005490) as part of a deal to stop the nation’s biggest steelmaker from selling its stake in the carrier, which was valued at $942 million at the time.
STX has grown into South Korea’s 14th-biggest business group since it was founded by Kang, 60, a decade ago through acquisitions. The group took over STX Offshore in 2001 and STX Pan Ocean Co., the nation’s biggest commodities shipping company, in November 2004.
It acquired Aker Yards ASA, Europe’s largest shipyard, for about 1.4 trillion won in 2007. Buying Hynix would be STX Group’s biggest acquisition.
STX Group’s five listed units had cash and equivalents of about 2.9 trillion won at the end of March, according to their financial statements.
For Hynix, the sale may result in the end of a decade under bank supervision. Hynix was bailed out by creditors including Korea Exchange Bank (004940) and Woori Bank in 2001 after they swapped debt for equity.
Hynix posted record sales and profit in 2010, helped by cost cuts and demand for chips used in mobile devices, leading the company to pay a cash dividend to investors for the first time. It reduced debt by more than 1 trillion won last year and had more than 2 trillion won in cash, according to the company.
The chipmaker plans to spend about 3.4 trillion won this year to expand production and upgrade factories, after investing the same amount in capital expenditure in 2010.
To contact the editor responsible for this story: Darren Boey at firstname.lastname@example.org