SK Telecom Bids for Hynix as Authorities Investigate Whether Funds Misused

SK Telecom Co., South Korea’s biggest mobile-phone company, offered to buy 20 percent of Hynix Semiconductor Inc. (000660) even as prosecutors investigate whether the chairman of the carrier’s controlling group misused funds.

SK Telecom submitted its bid yesterday before the 5 p.m. deadline set by Hynix’s main shareholders, Irene Kim, a Seoul- based spokeswoman for the carrier, said by telephone. Hynix shareholders received no other bid, said Lee Sun Hwan, a spokesman at Korea Exchange Bank. (004940)

A successful offer will give the carrier control of the world’s second-largest memory-chip maker and entry into the $39- billion-a-year market for computer-memory chips dominated by Suwon, South Korea-based Samsung Electronics Co. It’s the fourth attempt in two years by Hynix shareholders to unload the stake, which they gained through a 2001 government-led bailout. The bid came as chip prices fell to a record low.

“I struggle to see any logical reason why there are synergies between SK Telecom and Hynix,” said Shaun Cochran, head of Korea research at CLSA. “It’s clear from the unusual timing and nature of this decision that it’s not being driven from shareholders’ perspective.”

Largest Sale

Hynix rose as much as 5.1 percent, the most in a week, to 22,600 won and changed hands at 22,000 won as of 9:25 a.m. in Seoul. The shares have dropped 8.1 percent this year. SK Telecom gained 0.7 percent to 146,000 won.

Seoul authorities searched the offices of some SK Group affiliates Nov. 8 while investigating whether money was misappropriated. Chairman Chey Tae Won will prove his innocence, the group said in an e-mail response to Bloomberg News that day.

Yonhap News reported that prosecutors have been investigating Chey, 50, since May to determine whether he used money from SK Group companies to reduce personal losses from futures investments. Yonhap reported Nov. 8 that Chey and his brother allegedly embezzled more than 100 billion won ($88 million).

The investigation comes less than four years after South Korea’s highest court reaffirmed Chey’s suspended, three-year prison term for fraud. He later was pardoned by the government.

Cheapest Prices

Hynix had a market capitalization of 12.7 trillion won based on yesterday’s closing price. If the 20 percent stake shareholders want to sell fetches more than 2.6 trillion won, it would be the largest share sale for a Korean technology company since 1999, according to data compiled by Bloomberg.

Interest in the semiconductor maker comes as the benchmark DDR3 2-gigabit DRAM fell to 75 cents, the lowest level on record, according to data compiled by Bloomberg.

Samsung, which earned 23 percent of its revenue last year from semiconductors, was the only manufacturer among the three biggest to post a profit from the business last quarter. Hynix had a net loss of 562.6 billion won in the third quarter.

SK Telecom’s interest in Hynix shows how South Korean business conglomerates, known as chaebol, are making investments that aren’t in the best interests of shareholders, Cochran said.

Kim Hong Sik, a Seoul-based analyst at NH Investment & Securities Co., said the bid makes sense for SK Telecom because it is trying to diversify as growth slows in the telecommunication business.

Deadline Extended

“For a meaningful reorganization of business, they probably need something as big as Hynix,” Kim said. “Hynix isn’t having massive losses like before, and they’re generating cash rather stably now.”

Supporters of chaebol credit them with pulling South Korea out of poverty after the 1950-1953 Korean War and making it Asia’s fourth-largest economy. Yet the International Monetary Fund cited the debt-driven chaebol model as one reason for the 1997 economic crisis.

Fitch Ratings said in September that if SK Telecom buys the stake with debt, “the company’s credit strength may be impaired.” That echoed Standard & Poor’s July statement that the purchase would undermine the phone company’s credit rating.

The deadline for bids was extended twice since STX Group, which submitted a preliminary bid along with SK Telecom in July, pulled out in September. STX cited global economic uncertainties and concerns about investments needed to keep the chipmaker competitive.

$2 Billion Wealth

The shareholders, a group of financial institutions that spent $4.6 billion to bail out the chipmaker in the past decade, first tried to unload their shares in 2009.

Hyosung Corp. (004800), the sole bidder, walked away from negotiations in November that year, saying speculation it received political favors to pursue the takeover made it difficult to negotiate a fair acquisition.

Two subsequent attempts by creditors to sell their Hynix stake failed after no bidders emerged. In 2002, Micron Technology Inc. (MU) scrapped a $3 billion takeover offer after it was rejected by Hynix’s board.

SK Group, which started seven decades ago as a textiles maker, has grown into the nation’s third-largest chaebol with more than 80 units in the energy, financial services and telecommunications sectors. Chey’s wealth is estimated to be about $2 billion, making him South Korea’s seventh-richest man, according to Forbes magazine.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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