By Oh Young-jin
Assistant Managing Editor
I don't mean this title exactly as it sounds. After all, a chief financial officer (CFO) at a chaebol conglomerate doesn't have absolute power to hold one exclusively responsible for any boneheaded decision.
I am not a shareholder of the conglomerate I am about to talk about nor do I know what its CFO Lee Yong-joo is like. But a look at the recent self-rescue plan announced by Kumho Asiana Group makes me, as a daily follower of the market, feel disappointed at the lack of imagination.
In the spirit of accountability, the lack of which is universally condemned as the seed of the global financial tsunami, somebody has to take the fall for it and, if the CEO and owner can't be blamed in the current corporate structure, as my reasoning goes, it has to be the head of the CFO to roll.
Enough of my self-righteous babbling. One more thing, I want to make clear that the views expressed in this column belong to the author and may not reflect the Times' editorial policy.
Having said that, I recap what happened in the lead-up to its Sunday announcement of its decision to sell back the stake in Daewoo Engineering and Construction that it acquired three years ago.
It was a major case of post-merger & acquisition indigestion, the root cause being a ``put-back'' option Kumho agreed to with its ``financial investors,'' when these 17 institutional shareholders with a combined 39 percent stake completed Kumho's Daewoo acquisition. Under the deal, Kumho is required to compensate the difference, if the per-share price failed to reach 31,500 won by the end of the year. But since Kumho has six more months until the end of June next year to make the payment, the situation may not be as serious as it sounds, according to some market watchers.
At the time of acquisition, Daewoo's share price was in the 18,000 won to 20,000 won range. Kumho bought Daewoo shares at 26,500 won with a premium of about 40 percent.
Since then, it has nose-dived to almost less than 14,000 won. At the current share price, Kumho would spend 4.2 trillion won to honor its put promise by buying the 39-percent stake held by the financial investors.
Here is one CFO's legitimate excuse: By many indications, the Daewoo share price could have exceeded the 31,500-won mark if the global financial meltdown had not taken place last year, which no one foresaw three years ago. Daewoo Construction could have been the growth engine that Kumho Asiana had hoped.
However, this doesn't exonerate the CFO for his failure on two accounts. First, Kumho lost a chance to preempt strains on its group-wide cash flow caused by the Daewoo put option. If, for example, it had made the decision to give up Daewoo Construction during the previous round of self-rescue efforts, chances are that Kumho would have saved a lot, at least in terms of removing uncertainty, and would have found itself in a better position.
But Kumho insisted on keeping Daewoo Construction until the last possible moment, despite market expectations that it couldn't. It showed a mom-and-pop storeowner mentality and a classic case of being ``penny wise, pound foolish.''
It is a matter of course that other factors, such as share price movements and arrangements with the creditors were considered before Kumho picked last Sunday to announce its decision to give up Daewoo Construction.
As things stand now, if Kumho successfully sells a Daewoo stake that comes with management control, according to creditors, it would still be short by a large amount.
The shortfall could be bigger, if its stake were taken over by a private equity fund. Kumho plans to sell other assets to make up for it.
Were it not for the contrasting precedent set by Doosan, I would be willing to pardon the Kumho CFO.
Facing a no-less-severe liquidity problem from its acquisition of U.S. equipment maker Bobcat, Doosan, whose corporate roots are traced back to OB Brewery, recently surprised the market with its clever financial scheme to stabilize its cash flow and enable it to go on an expansion mode without losing Bobcat. OB Brewery is now under the control of Anheuser-Busch, the world's largest beef maker, and is put up for sale with a private equity fund being the preferred negotiator.
Doosan's scheme is a variation of a classic case of the good-company-bad-company format. A twist is that, in a classic case, a bad company, which serves as a dumping ground for bad debts, carries little chance of generating cash from an immediate perspective. But Doosan is getting a sizable sum from two new firms that were created together with equity funds.
This is clearing Doosan of financial strains and allows it to pursue a big overseas acquisition involving Skoda, a power-generating turbine maker. The Kumho CFO's second sin is that the Kumho plan didn't have any surprise to ``move the mind of the market,'' perhaps the sale of its golden-egg-laying Korea Express.
Maybe a look back after one or two years would show the reversal of the two companies' corporate fortunes, but, at least for now, the winner is clear. Then again, in the market, today's winners can be tomorrow's losers. Let's wait and see if Kumho, one of Korea Inc.'s growth engines, can turn today's pains into tomorrow's gains.