Lee Struggling to Juggle Two Priorities
By Jane Han
Staff Reporter
Lee Ku-taek, chief of the Korean steel giant POSCO, has two major projects on his plate: the bid to takeover Daewoo Shipbuilding, and to remove the hurdles dogging the company's massive India project. The question is has Lee bitten off more than his business can chew?
His track record so far shows that the India project is going in the opposite direction to the company's longstanding can-do spirit. The $12 billion initiative to build the company's first integrated steel mill overseas has been stuck in the doldrums for the past two years. In fact, it took a deadly turn last Friday.
One man was killed after anti- and pro-POSCO demonstrators in Orissa State in India clashed. Conflicts have been frequent among villagers split on allowing the project, but this is the first time such clashes have led to a fatality.
The latest development is not a good sign and doubts are growing among investors, especially after Lee said in the company's 40th anniversary ceremony in April that ``progress is slower than expected, but there are no major problems.''
POSCO spokesman Kim Dong-wan, however, fended off concerns, Wednesday, stressing that ``plans are underway as scheduled.'' The groundbreaking date, which has been delayed numerous times, is unclear yet.
The situation in India should by any means be overlooked, but the CEO of the world's fourth-largest steel group currently has another, perhaps more urgent, matter to square away.
The world's No. 3 shipyard, Daewoo Shipbuilding & Marine Engineering (DSME) ― with strategic planning and tactics ― is almost within his reach.
Since early this year, Lee and other company executives have outwardly expressed POSCO's interest in taking over Daewoo, as the deal is expected to lock in a major customer of steel plates and open up a new growth engine.
POSCO President Yoon Seok-man told reporters in April that taking over DSME will allow POSCO to secure a stable buyer, even after the shipbuilding industry starts to wane in the future. Market analysts have widely forecast that the current booming industry will start to decline after 2010.
However, this move is triggering concerns over fair play among critics and market watchers.
``Immediately, there is a shortage in steel sheet supply,'' said Kim Yong-ki, a senior research fellow specializing in anti-trust law at the Samsung Economic Research Institute.
``So if POSCO decides to channel a stable supply only to its would-be subsidiary, that can go against market rules.''
Another expert of unfair business practices at the Korea Economic Research Institute said even if POSCO ends up buying DSME, the steel maker will be slapped with restrictions for a limited period of time.
He highlighted the SKT-Shinsegi and Hite-Jinro mergers, explaining that the Fair Trade Commission (FTC) gave them a ``conditional approval,'' in which certain conditions ― such as restricted market share and price increases ― had to be followed.
``The FTC plays a key role in the final procedure of a merger,'' said Kim. ``So it all depends on how the watchdog evaluates the market.''
Despite these growing concerns, POSCO said that selling steel plates was not part of their agenda in the DSME takeover.
``We are already selling a lot here and overseas,'' says Kim of POSCO. ``Our main focus is expanding into the marine plant industry.''
He said the domestic demand for steel plates amount to 12 million tons a year, of which POSCO supplies 34 percent. The remaining amount is either bought up from the No. 2 producer Dongkuk Steel or imported from overseas.
``Even after the shipbuilding industry starts to wane, we don't foresee problems in selling our products,'' he said, calling such accusations as groundless.
Regardless of conflicting rumors and claims, Asia's third-largest steel maker is considered to be one of the most viable candidates to takeover DSME, which analysts say could cost nearly $5.1 billion (5 trillion won).
POSCO scores high because of its solid financial readiness and corporate transparency compared to its competitors GS Group, Hanwha and Doosan. But one of the key tasks left for Lee is to convince his board and investors that the costly deal will be helpful for POSCO in the long run.
If he successfully steers his way to completing the acquisition, POSCO's corporate ranking in assets would rise to No. 5, replacing Lotte Group. The deal is to be finalized by this fall.