What’s real reason for STX to give up Hynix bid?

Inside account shows Chairman Kang had more than simply funding problems

By Kim Yoo-chul

STX's ill-fated effort to take over Hynix Semiconductor started and ended with a surprise.

Financial markets were taken by surprise when the shipbuilding-centric mid-tier conglomerate STX Group submitted a letter of intent (LOI) to Hynix shareholders. The chip firm is valued at 3 trillion won.

A backlash from financial markets and even some STX insiders over acquiring the world’s second-biggest chipmaker due to less synergy between existing and new businesses really didn’t bother STX Chairman Kang Duk-soo.

At that time, Kang strongly believed that the chaebol needed to find new business breakthroughs amid struggles in its conventional shipbuilding areas.

The 61-year-old chairman, considered something close to a legend to many salaried workers, thought Hynix was the right choice to bolster his corporation’s international presence.

Kang is one of the most talked-about businessmen in the country after building the country’s 12th largest conglomerate in just 10 years since taking over Ssangyong Heavy Industries, an ailing engine maker he worked for.

``But he underestimated points that shipbuilding and memory chip industries are both cyclical and volatile upon economic situations. STX’s own cash is drying up, while debt-ratios are increasing,’’ said a fund manager from a Europe-based investment bank (IB) in Seoul.

``Logically, shipbuilding and chip-making are the same. It’s labor-intensive and needs huge amounts of cash. Kang was too much ambitious.’’

Normally, more than 2 trillion won is needed annually, just for technology migration and maintenance.

Kang understood this, holding strategic meetings with Abu Dhabi-based sovereign wealth fund Aabar for a funding partnership.

STX, which has a good reputation and brand awareness in Middle East thanks to its deep involvement in construction-related businesses there, previously said that Aabar will remain as a ``funding partner’’ and STX will completely handle the management rights of Hynix.

Financial markets initially welcomed STX’s announcement and Hynix shareholders offered favorable conditions both to STX and SK Telecom as an apparent strategy to proceed the deal.

But talks with Aabar stalled without breakthrough and controversies about STX’s real intentions emerged.

The last straw, however, proved to be an allegation made by a source that Kang’s Hynix bid was being piggybacked by Cheong Wa Dae, as mentioned by The Korea Times on Sept. 15.

According to some sources, this report triggered an alert in high places of the government because it could constitute an act of influence peddling at the top level.

“Cheong Wa Dae and the surveillance organizations contacted STX to check the story,” a source said.

Kang flew into a rage, being on the receiving end of flak from high places. Aides were called in and faced a barrage of questions by Kang, according to some sources.

Then, a rumor started Saturday and amplified Sunday with stock market sources predicting an important announcement in a news conference Monday.

STX PR officers denied any news conference plan.

There was no press conference but STX was asked by stock market authorities to respond to the rumor. STX announced it was dropping its bid.

The conglomerate admitted that Aabar pulled its investment plan for Hynix and said in a statement that it’s too burdensome for STX to continue to invest in memory and non-memory chip facilities after the acquisition amid lingering uncertainties.

``The complete withdrawal from Aabar was the critical reason for us to drop the Hynix bid. STX agreed a joint partnership with Aabar, however, we’ve failed to reach a final agreement due to big differences,’’ said Lee Jong-chul, STX Group vice chairman.

STX ended the bid without yielding any returns. Rather, its corporate image was mocked as it’s not the first time for STX to drop an ambitious bid for large mergers and acquisitions.

``The decision makes sense. STX needs to put more focus on strengthening its conventional businesses rather than finding ways for external growth by acquiring non-shipping firms,’’ said M.S. Song, an analyst Hi Investment and Securities.