Why did POSCO sell its stake in SK Telecom?

By Kim Jae-won

It may not be easy to guess what’s in common between world-class steelmaker POSCO and the nation’s top-tier mobile phone carrier SK Telecom. Things are similar with KCC, a construction material maker, and Samsung Everland, Korea’s largest amusement park.

The clue is the so-called ``white knight,’’ or friendly investor relationship. They are connected through sharing stakes to protect the other from hostile mergers and acquisition (M&A) bids, possibly from overseas corporate raiders.

Some Korean companies swap their shares to create allies against a hostile M&A bid and find new business chances with the deal. Here are some examples of how they help each other to show a fraction of the local map of corporate white knight relationships.

POSCO and SK Telecom

POSCO and SK Telecom have kept the “white knight” agreement for the last 12 years. The two players swapped stakes in 2000 when the latter was in urgent of cash to buy small-sized mobile operator Shinsegi Telecom. POSCO gave its stake in Shinsegi to SK in exchange for a 6.84 percent stake in SK.

But, POSCO’s recent sale of the SK Telecom stake drew attention from industry watchers making them wonder whether they plan to break up their relationship, which has been deemed mutually beneficial.

Last week, the steelmaker sold shares in three Korean firms for a combined 583 billion won ($520 million), as part of efforts to improve its financial status POSCO said.

The company sold about 2.34 million shares in SK Telecom for 321 billion won via block sales before the market opened, 3.86 million shares in KB Financial Group for 163 billion won, and 2.23 million shares in Hana Financial Group for 99 billion won.

POSCO claims that its decision was made from a pure financial perspective, but some analysts cast a suspicious eye because it already holds up to 3 trillion won in cash and equivalents.

“We sold the shares to reserve cash to brace for the cloudy forecast in the global steel industry,” said Jeong Jae-woong, a spokesman at POSCO.

Chief Executive Officer Chung Joon-yang said earlier that the world's No. 3 steelmaker will either list some of its unlisted affiliates on the local stock market or sell some of its stakes in local firms, as it seeks to improve its financial footing.

POSCO's earnings in 2011 dropped 11.6 percent from a year earlier due mainly to low steel prices and the increased cost of raw materials. Net profit reached 3.7 trillion won on a consolidated basis in 2011, compared with a profit of 4.19 trillion won a year earlier.

KCC and Samsung Everland

KCC Honorary Chairman Chung Sang-young came under the spotlight in December as the company played a white knight role for Samsung Everland, the de facto holding company of Samsung Group.

The former chairman of the company, who still has substantial internal influence, is known to have an agreement with Everland to help the outfit defend its managerial rights against a possible hostile bid.

KCC agreed with Samsung Card to buy its 17 percent stake in Everland. Samsung Card was forced to lower its stake in Everland below 5 percent by the Finance Industry Restructuring Law, which prohibits a financial company to have more than a 5 percent stake in a non-financial company.

Managerial rights of Samsung Everland are seemingly invulnerable because offspring of Sasmung tycoon Lee Kun-hee hold majority stakes in it but the amusement park appears to be setting up double safeguards through the deal.

From the viewpoint of KCC, experts say that it killed two birds with one stone. They say KCC may sell its products to Samsung subsidiaries thanks to the deal, where they had no chance before.

Goldman Sachs and JPMorgan Chase reportedly arranged the deal. Goldman has been a key partner for Samsung, while JPMorgan helped KCC’s Mando stake sale last year.

DSME and Hyundai Merchant Marine

Daewoo Shipbuilding & Marine Engineering (DSME) also helped Hyundai Merchant Marine keep its managerial rights by buying 2 percent stake in Hyundai Merchant with 73 billion won.

Hyundai Merchant has been in conflict with Hyundai Heavy Industries, the company’s second-largest shareholder, but was able to defend its managerial rights thanks to the help from DSME.

To appreciate DSME’s help, Hyundai Merchant ordered five big container ships from the company.