Hyosung seeks spin-off to prevent family feud

Hyosung Group Chairman Cho Hyun-joon, left, and Vice Chairman Cho Hyun-sang / Courtesy of Korea International Trade Association, Hyosung

Hyosung Group has begun procedures for the chairman’s youngest brother to take control of several of the group’s affiliates, so that the owner family can avoid any additional internal conflicts, according to industry officials, Sunday.

The conglomerate decided to set up another holding company that will oversee six affiliates, including the industrial materials manufacturing and IT services providing units, it said Friday.

Hyosung Vice Chairman Cho Hyun-sang, the youngest brother of Chairman Cho Hyun-joon, will lead the new holding firm and its subsidiaries, which are expected to post a combined 7 trillion won ($5.3 billion) in annual revenue. The vice chairman has managed the group’s industrial materials business since he joined the group in 2000.

Once the new holding firm is launched in July, its board of directors will be independent of Hyosung Corp., the existing holding company of the group.

The chairman will continue to lead Hyosung Corp., which will supervise the group’s key subsidiaries, including the fiber manufacturing and construction arms. Their combined annual revenue is estimated at 19 trillion won.

Hyosung explained that its planned spin-off is intended for responsible management and to agilely respond to the rapidly changing business environment.

“The new holding firm will look for R&D-oriented new businesses and M&A opportunities for the group’s expansion,” the business group said in a press release. “In addition, it will promptly respond to requests from the global clients and the market, prioritizing its employees for the world-class corporate culture.”

However, Hyosung’s latest decision is widely interpreted as an attempt to prevent its chairman from facing another sibling feud over control of the group.

He has had disputes with his other younger brother, former Hyosung Vice President Cho Hyun-moon, who sued the chairman and other executives in 2014 for alleged embezzlements. Following a series of legal battles, the former vice president has been kept away from participating in the group’s management.

While the former vice president does not have any stake in Hyosung Corp., the chairman and the vice chairman hold 21.94 percent and 21.42 percent stakes in the group’s holding firm respectively. Their 88-year-old father, Honorary Chairman Cho Suk-rae, owns a 10.14 percent stake.

When the honorary chairman inherited the control of Hyosung in the 1980s from his father, late founder Cho Hong-je, the control of the tire manufacturing unit, Hankook Tire, went to the founder’s second-oldest son, Cho Yang-rae, who is currently the honorary chairman of Hankook & Company.

Industry officials therefore speculate that Hyosung’s new holding company may also leave the business group to guarantee the vice chairman’s independent management.