In 2012, many wondered why a billionaire from South Korea Choi Tae-Won has decided to spend $3 billion on the purchase of shares of the company Hynix Semiconductor is the second largest chipset manufacturer in the world, experiencing not the best times. In the ten years before the Korean government had saved Hynix Semiconductor from bankruptcy. But now the company again suffered losses, and prices slowly fell, together with the global demand for computers and chips of RAM.
The idea to buy Hynix Semiconductor was unusual for Choi Tae Won also because his holding SK Group were United by operator, the oil and gas company, a hotel chain — but no chipset manufacturer among its assets was not.
“In the financial market almost all considered the purchase of shares Hynix terrible mistake,” says Dan Baker, the head of the research Department of the Hong Kong branch of information and analysis company Morningstar. Since the announcement of the deal in November 2011 to its closure in February 2012 of shares SK Holdings fell by 15%.
But he is Choi Tae-Won believed the shares of Hynix Semiconductor justified purchase. “Our conglomerate needed to expand, he said in an interview at the forum in Davos. Someone had to do this step. I found this deal quite reasonable.” Buyer 21% stake in Hynix Semiconductor, the group of creditor banks was made by SK Telecom, a subsidiary of the SK Group. And Choi Tae-Won received a new position: he became the co-Chairman of the company Hynix, which is then renamed to SK Hynix.
Attempt Choi Tae-Won to go out on the volatile chip market was one of the most profitable investment. The billionaire chose a very good time to become a shareholder in SK Hynix and could gain huge profits due to the rapid growth of smartphone sales around the world. The estimated SK Hynix profit last year was $14 billion — 40% more than in 2017. Revenue in 2018 amounted to $36 billion, the profitability — an impressive 39%. Since Hynix Semiconductor became part of the SK Group, the shares of the chipmaker jumped almost 150%. In September 2018 SK Hynix took 20-th place in first ever ranking of 100 best public companies in the field of digital economy according to Forbes. The rating includes companies from 17 countries. Sam Choi Tae Won with a fortune of $4.7 billion took seventh place in the list of 50 richest people in Korea. According to analyst Dan Baker, buy Hynix Semiconductor has become a “great investment — given the growth of the market of microcircuits of memory”.
The deal with Hynix Semiconductor also became a kind of turning point for Choi Tae Won. Thanks to her, he had the courage to make risky bets, which is famous conglomerate SK Group under the guidance of his father Choi Tae Won until his death in 1998. Confidence in the success of a 58-year-old Korean billionaire demonstrated in June of last year, when SK Hynix was included in the consortium of investors which acquired a 49.9% stake in Japanese chipmaker Toshiba Memory for $18 billion SK Hynix also showed the owner that his conglomerate needed to expand. According to representatives of the conglomerate, now SK Hynix brings 70% of net profit SK Group, which is higher than the incomes of other subsidiaries, for example, telecommunications, oil and gas and chemical companies. However, given the cyclical nature of development in the chip market, SK Hynix represents a greater potential threat. Therefore, for more than two years conglomerate SK Group invested $2.6 billion in new business areas, for example, in the services of a taxi, bio-pharmaceuticals, and food manufacturing. “We need to explore other niches. I can’t one hundred percent rely on semiconductors,” says Choi Tae Won.
“It was like a war”
History of conglomerate SK began in 1953, immediately after the end of the Korean war. Then Choi Jong-kun, uncle Choi Tae-Won, was engaged in the production of polyester and founded the company Sunkyong Textiles (SK — abbreviation of the word Sunkyong). Guide Sunkyong Textiles has received several government loans and tax incentives for business expansion, which began with the export viscose in Hong Kong. In 1973, the 47-year-old Choi Jong-kun died of lung cancer. As three of his sons were too young to lead the company, according to Korean tradition, his place was to take the younger brother of Choi Jung Hyun is the father of Choi Tae-Won.
Under the leadership of Choi Jung Hyun SK became a full-fledged conglomerate: a businessman decided to invest in two companies, not related with textile business, whose shares are still considered to be the most important asset of the South Korean holding. In 1980, Chen acquired 50% of the oil company, Korea Oil at the former giant of the American oil industry Gulf. Then, Korea Oil was renamed SK Innovation. As a result, the acquisition of SK is among the five largest Korean chaebol in terms of assets. Chaebol is a Korean name diversified holding owned by the family clan. Now chaebol SK Group is ranked third in terms of assets after Samsung and Hyundai. And in 1994, Choi Jung Hyun has gained control over the state company Korea Mobile Telecommunications Services, which was later renamed SK Telecom.
In 1998, in the midst of the Asian financial crisis, from lung cancer died, and Choi Jung Hyun. His 37-year-old son Choi Tae-Won had to change it to a post of the Chairman of the holding company. That’s what billionaire says about the Asian financial crisis and the death of his father: “It was like a war. I thought only that I need to survive.” From Choi Tae Won has been in preparation for this. In the late 1980-ies he studied at the University of Chicago in the United States, where he met his future wife, But SEO Yeon, the daughter of former South Korean President But Tae Woo. Career in SK Choi Tae Won began in 1989 as the Manager of a subsidiary in the Californian city of San Jose. Two years later he joined the U.S. headquarters of the holding in new York. In 1994, the businessman returned to Seoul and took up the post of Executive Director. By 1997, he was promoted to chief Executive officer of SK Corp, the largest subsidiary of the conglomerate in that period.
Choi Tae Won has filled his hand on the small trades. For example, in 2000, SK Telecom, under his leadership, has absorbed its rival Shinsegi Telecom, paying 2.3 trillion Korean won ($2 billion) in shares and cash. Due to acquisition of Shinsegi Telecom, SK Telecom the share in the market rose sharply from 43% to 57%. However, plans for further expansion had to be postponed: in 2003, Choi Tae-Won was sentenced to three years in prison for financial fraud. But after seven months he was paroled, and in 2008, billionaire — fully pardoned. In 2007 Choi Tae Won has managed to continue expanding conglomerate SK. He renamed the company SK Corp SK Holdings and led her to the exchange. Then, Choi Tae Won, with SK Holdings entered the Chinese market, investing in oil exploration in the South China sea, as well as energy and chemical industry in Shanghai and Wuhan. Today SK Holdings, the de facto holding company responsible for the largest enterprises cebola. Choi Tae-Won and his family owned a 30% stake in SK Holdings.
Today the SK Group is comprised of 101 company. The conglomerate employs 93, 000 people and the total revenue of SK estimated $140 billion the 16 companies of the 101 work independently, but their Executive Director monthly to participate in the meetings of the so-called “Supex Council”, which shall coordinate the strategy of development of enterprises under the motto “independent but United”.
When Choi Tae Won for the first time consider buying shares of Hynix Semiconductor, the chipmaker ran into financial difficulties despite the fact that he played a leading role in the market of chips of memory DRAM. Nine Korean creditor banks, which after the rescue Hynix from bankruptcy in 2002 was its largest shareholders for many years looking for a buyer for its stake. In 2002, a U.S. Corporation Micron Technology tried to redeem shares of Hynix for $3 billion, but the Board of Directors of the South Korean company did not approve the deal. In 2009, another Korean chaebol, Hyosung company, offered for a controlling stake in Hynix $2.8 billion But with Choi Tae Won was something that did not have other potential buyers: report SK Telecom on the amount of data transmitted in the cellular network, which showed that the demand for DRAM will increase due to the replacement of old high speed 3G 4G. Choi Tae Won realized that soon the demand for chips will soar thanks to the rising number of smartphones that use the 4G network.
And he was right. According to research firm Statista, over the past five years, the volume of sales of semiconductor products rose by almost 52% and reached $463 billion “because of the transition to 4G networks need to increase the memory of the smartphones. And the overall demand for memory chips has also increased,” explains Sean Pak, Deputy Director of the Hong Kong subsidiary of S&P Global Ratings. “This is only part of the potential growth that could see the leadership of SK Telecom,” adds the expert.
The SK conglomerate gained control of Hynix Semiconductor in 2012. A year later, the company’s profit rose to $2.7 billion — despite the fact that, before the transaction loss was $148 million, However, Choi Tae-Won’t be able to celebrate the success of the company, together with subordinates. In early 2013, he was again arrested — this time on charges of misappropriation of funds of the company. In February 2014, the businessman was sentenced to four years imprisonment. In August 2015, South Korean President Park Geun-Hye pardoned Choi Tae Won. And while the businessman has served his sentence, the net profit of SK Hynix increased by 40% and prices by 51%. Profit holding, SK Holdings soared by 90%, and the share of SK Hynix in its financial results have tripled.
In March 2016 Choi Tae Won has returned to managing the family business. On the basis of SK Hynix, he decided to create a vertically integrated manufacturer of chips. The businessman bought the shares of companies that supply raw materials SK Hynix semiconductor wafer and the materials needed to create chips. In 2017, the profit of SK Hynix has increased more than three times, and in 2018 increased by 46% and reached a record amount at 15.5 trillion Korean won. This could not fail to attract the attention of competitors. The main threat comes from the Chinese chip manufacturers. State-owned Yangtze Memory Technologies manufacturing semiconductor memory NAND flash. In the case of NAND chips we are talking about flash memory that allows to save data even in the absence of seamless connectivity to the power source. This is their main difference from DRAM. “China plans to self-produce such chips, to ensure the stability of their supplies,” says cliff Leimbach, senior analyst of information company IHS Markit.
SK Hynix began working with the NAND chips, but the production still lacks scale. Currently, the company ranks second in the world in the production of DRAM chips and only a fifth — NAND. To create smartphones need both types of semiconductor memory: DRAM chips to ensure the operation of an increasing number of applications, and the NAND chips to store more photos, songs and other data. In June last year, Choi Tae-Won decided to act more actively and bought part of the company’s shares to Toshiba Memory, ranked second in the world in production of NAND chips. Japanese Corporation Toshiba, which includes Toshiba Memory, just tried to sell some shares to pay off the debt for the loss-making subsidiary in the US, working in the field of nuclear energy. With the help of investment company Bain Capital was created by a consortium of investors that bought the stock Toshiba Memory. In addition to SK Hynix the consortium included Apple, Dell and Kingston Technology.
It would seem that it was meant to be simple. But the deal required the approval of the responsible authorities of eight countries (including China), which took nine months. Only in may 2018 China expressed no objection. To some extent this was a goodwill gesture against Washington in the trade war between China and the United States. According to Choi Tae Won, another obstacle to quick execution of the transaction, has become a complex hierarchical structure in the Toshiba. “It was a very complex deal. But South Korea, the US and Japan came together for one goal,” said a Korean billionaire. In exchange for $3 billion of investments SK Hynix received a 15% share of the Japanese manufacturer of semiconductor memory.
“It’s all about the people”
But Choi Tae Won didn’t stop. In October 2018 SK Hynix opened in South Korea another plant for the production of NAND. Over the next five years the company plans to invest in manufacture of $18 billion And in February 2019 Choi Tae Won announced the adoption of a ten-year investment plan, which will come into force in 2022. SK Hynix to invest $107 billion in four large plants for the production of semiconductor memory, as well as in the vertical integration of the supply chain. Although analysts, and note that the plans for the next ten years, often being modified, this step shows that Choi Tae Won thinks about the long term development of SK Hynix.
The last six years, Choi Tae Won has diversified investments SK, buying shares of companies from different sectors of the economy. He spent $3.2 billion and became the capital of 12 companies in Europe, South East Asia and the United States. In 2017, the chaebol SK for $459 million, bought two production lines of chemicals from the American company Dow Chemical, in March 2018 acquired the shares of Singapore’s taxi service Grab $75 million, and in September invested $470 million 9.5% stake in Vietnamese conglomerate Masan Group, whose investment portfolio includes shares of financial companies, food manufacturers and livestock enterprises and mining companies. This year the head of the Vietnamese conglomerate Masan Group Nguyen Dang Quang was included in the rating of billionaires Forbes. His fortune is estimated at $1.3 billion
During his detention, Choi Tae-Won wrote a book about social entrepreneurship. He argues that investment cebola SK directed not only on expansion of production and increase profits. They must also be socially significant. “My father adhered to a certain philosophy,” says Choi Tae Won. The billionaire remembers how father asked him what the secret of success SK. “It’s all about the people” — answered your own question Choi Jung Hyun. At the world economic forum in Davos Choi Tae Won for the first time became the leading panel discussions on social investments, which he jointly held with the representatives of consulting company Boston Consulting Group. “If we spend so much money, it ought to affect society,” said a Korean billionaire.
In response to the question about how Korean conglomerate SK makes the world a better place, his head quoted excerpts from the pilot programme, launched in September 2018 company SK Innovation, in cooperation with GS Caltex (oil company GS Caltex is a joint venture of the Korean cebola GS Holdings and U.S. energy giant Chevron), as well as CJ Logistics and logistics start-up Zooma. The essence of the pilot project consists of the following: online stores can use about 200 of the 3,600 petrol stations owned by the conglomerate SK as distribution points of delivery of the goods. According to the management of SK, the project called “design your AZS” supports small business by providing its infrastructure at the disposal of startups such as Zooma. Sounds promising. However, some noted that the project is only in its infancy. “This is only a small part of the business of the company, says Yu, Wang Hui, an analyst with the Hong Kong branch Moody’s. — This project does not bring big profits, but we need to continue to monitor his development.”
Others are concerned that the attempt to diversify the investments of the conglomerate SK abroad cebola distracts the user from the key areas of the business in the territory of South Korea. “Investors don’t like uncertainty, — said Yang Jong In, an analyst at Seoul Korea company Investments and Securities. — Foreign investments are not particularly successful, and investors prefer the Korean company foreign.
However, many analysts say the desire Choi Tae-Won to make SK more independent from cyclical economic development. In 2001, for example, the company Hynix can be seen that every economic recovery followed by decline. Despite the impressive growth of profits in 2013, the company is expected to soon once again faced with declining revenues due to oversupply of chips of semiconductor memory. “Weak demand and volatility in world trade — the main two reasons that are related to the downturn,” says analyst cliff Leimbach. According to him, the smartphone market is saturated, and consumers have already don’t change phones as often as before.
Following the example of the Japanese telecommunications Corporation SoftBank, this year’s chaebol SK plans to turn SK Telecom in a structure that will deal with the technological investments of the conglomerate. SK Telecom is reminiscent of the investment company. Last year, chief Executive officer of SK Telecom, Jung-Ho Pak conducted several successful transactions. For example, it has attracted funding in the amount of $450 million for a Korean online store 11 Street. “Of course, without the failures will not do. But investing in these companies, they hope to build not one profitable business,“ said Dan Baker, the head of research at Morningstar.
Last year, the Korean chaebol launched in Singapore new investment Fund of SK Southeast Asia Investment. So far, the leadership SK has allocated an investment of $500 million that the Foundation spent on the purchase of a 9.5% stake in Masan Group. This year the Foundation will receive another $500 million for investments in South-East Asia. “The leadership of the SK Group like the market of South-East Asia. He has a big growth potential,” said Cho Tae-Box, Chairman of the monthly “Council Supex”.
This month, Choi Tae-Won likely to leave the post of head of SK Holdings, in order to focus on the leadership of all cabalen. According to him, investment in the Vietnamese Masan Group Corporation may also be called a part of the SK project to strengthen social entrepreneurship. “We were more interested in the leadership of the conglomerate Masan Group than its investment portfolio,” said Choi Tae-Won. Now, however, he met with the government of Vietnam to offer ideas on business development. Special attention was paid to issues such as the protection of the environment, because projects in this sector can do business conglomerate socially significant. “In the end, we all aspire to happiness. Some may say, “Just earn more money.” Isn’t it? In fact, it should not be,“ said Choi Tae Won — Think why many look down on Korean chaebols. I want to change this attitude”.
Translation Of Pauline Sanaevoj
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