Day 322 Catfish and Mudfish

           My friend asked me one day,

“Isn’t Samsung a Korean-representative company?”

“Yeah, you can say that.”

“But is Samsung’s foreign equity over 50%?”

“Yes, that’s true.”

“Then does it mean that the management right of Samsung passed into foreigner’s hand?”

“No, that is not true. You do know that who owns Samsung?”

“Still, is it true that Samsung’s foreigner equity is over 50%?”

“Even though Samsung’s foreign equity is over 50%, the management right of Samsung isn’t transferred to foreigners. It’s not right to regard thousands of foreign stockholders as one foreign stockholder.”

My explanation kept going on, however, he still stuck to the idea that foreign capital takes the management right of Korea’s top-ranking companies.   

           Demonizing foreign capital and emphasizing the bad effect of hostility M&A is sweeping over the country after the attack from Sovereign in 2003 and the controversy over fair trade amendment in 2004. The beginning of this hostile attitude was Carl Icahn, Enterprise Hunter, attacking against KT&G. “Sovereign, Icahn, and who’s next?” “Defenseless Korean enterprises are open to hostile M&A from avaricious foreign capitals.” Conservative press keeps opposing foreign capitals and hostile M&A. Jeon Kyung Ryun (the Korea Employers’ Federation) is singing the same song. “Korean enterprises’ shield against foreign capital isn’t strong enough to endure their severe attack.” With this song being on a background, the conservative press blames the government. “The government is sitting on the fence while Korean enterprise is beat up by hostile foreign capital.” But Han Duck Soo, the deputy premier of the financial department, said that we don’t need to take additional measures to protect against foreign capital’s hostile M&A. The public is confused; who is right on this matter?

           Economy textbooks define hostile M&A as a part of natural phenomenon in Capitalism. Furthermore, they explained that M&A helps to boost the economy and to develop enterprises, because of improved management’s transparency and responsibility through observing managers, and raised enterprises’ value by reforming the management system. The benefit of M&A works the same way as a fish farmer putting a few catfish into a mudfish fishery. While mudfish are trying to escape from catfish, mudfish exercise properly and it makes quality mudfish. Of course, a few of them are eaten. But without catfish, the quality of the entire mudfish degrades. That is why the government loosens its overly protective measure for the management right. In order to get the benefit of M&A, the balance between the attacker and the defender is significant. If there were very few catfish, the mudfish would not have much exercise as the farmer expected. In contrast, if there were too many catfish, the farmer would suffer heavy loss. What is about our current situation? Even though there are over 1600 listed enterprises in Korea, the examples of foreign capital’s attack were just two cases (SK and KT&G) since the financial crisis nine years ago. Having this in our mind, do you honestly think that there are too many catfish in the fishery? Also, M&A professionals point out that the existing law includes various measures to protect the management’s right. Such being the case, conservative press and Jeon Kyung Ryun, standing up for capitalism, are now advocating anti-market economy – criticizing the hostile M&A. 

           It is a socialist state where the market doesn’t allow hostile M&A. Demonizing foreign capitals is threatening our future in the global economy. Although the Korean financial market isn’t strong yet, it needs to build up its strength and run for the global market. It will contest with competitors the same as Samsung and Hyundai competing in the world. What our conservative press would say if foreigners kept asserting that ‘Korean capital=a speculative ca

pital=a demon’? Instead of judging foreign capitals based on good and evil, we need to take up a wise policy using it as catfish of the Korean economy