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Hyundai Group chairwoman Hyun Chung-eun, left, and her brother-in-law Chung Mong-jun, right, Chairman of Hyundai Heavy Industries Group, are feuding over control of the Hyundai flagship.
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Son of founder battles her sister-in-law for control
The feud between Hyundai Group and Hyundai Heavy Industries Group over control of the Hyundai holdings has intensified, with upcoming bidding on Hyundai Elevator Co. set to decide the power struggle.
As shares change hands, the fortunes of two Hyundai chairs are decided
Hyundai Merchant Marine (HMM) acts as a holding company for the Hyundai Group. Gaining control of HMM will mean control of the entire Hyundai Group, given the cross-investment among Hyundai Elevator Co., HMM, and Hyundai Securities Co. And HMM now has a new largest shareholder: on April 27, the Hyundai Heavy Industries Group bought about 18.43% of HMM shares in a single offer, becoming the largest shareholder of the group, outranking Hyundai Elevator Co, which owns 17.16%. Hyundai Heavy Industries Group’s stake in HMM’s total shares now stands at 26.68%, surpassing the 20.63% controlled by Hyundai Elevator Co., and other core shareholders. The driving force behind the purchase is independent legislator Chung Mong-jun, the brother-in-law of Hyundai Group chairwoman Hyun Chung-eun. Ms. Hyun is the widow of late chairman Chung Mong-hun, who jumped to his death while being investigated for his alleged involvement in the cash remittance scandal surrounding the group’s North Korean development projects.
Mr. Chung is the largest shareholder of the Hyundai Heavy Industries Group, with a 10.8% stake. This stake gives him a chokehold on Hyundai Samho Heavy Industries Co., Hyundai Mipo Dockyard Co., and other subsidiaries. That is why this large-scale purchase of HMM shares by the Hyundai Heavy Industries Group has been dubbed a "younger brother-in-law’s rebellion."
While chair Hyun appears to be afraid of losing control of Hyundai Group, Ashe appears optimistic that her defenses against such a takeover are adequate. First, her "friendly stake" is a total of 34.74%, including Hyundai Elevator Co.'s 17.16%; Cape Fortune's 10%, her family's 3.69% and her employee shareholders’ 3.89%. Meanwhile, Hyundai Heavy Industries’ friendly stake is about 32.94%, which includes its own 26.68%, and 6.26% owned by KCC.
Projections that HMM’s recent public offering will change the ownership structure in Hyundai Business Group's favor add to her optimism. On May 17, HMM set the offering price of new shares in the first batch at 14,000 won. To encourage HMM employees to buy more shares, the company came up with an incentive: it will pay interest on the loans they take out for the purchases for the next three years. If employees buy up all 6 million shares in the offering, it would increase employee shareholders’ stake to 8.23% from 3.89%
Meanwhile, the move would reduce the stakes controlled by the Hyundai Heavy Industries Group and KCC to 25.48% and 5.98% respectively. With the sale of new HMM shares, the Hyundai Business Group could get ahead of the Hyundai Heavy Industries Group by 6% in terms of friendly stake. "Six million shares, or 20% of the shares in the offering, will be earmarked for sale to employees," said a HMM source. "If they are sold out, the group's friendly stake will become slightly higher."
However, the state of affairs won't allow the Hyundai Business Group to rest easy. With their control of 2.31% and 0.55% respectively, Hyundai Department Stores Co., and Hyundai Motor have so far remained neutral. A united front between them and Mr. Chung would reverse the situation. It is still possible that Mr. Chung, backed by bountiful resources, can use his subsidiaries to further buy into HMM. What is more, the battle over control of Hyundai Elevator Co. (HEC), the wild card, has yet to come.
With HEC controlling 8.69% of HMM, whoever acquires HEC will be at the helm of the Hyundai Business Group. The Hyundai Heavy Industry has reiterated that it has little interest in acquiring HEC. Group executives emphatically deny the possibility.
The Chung family is against an acquisition of HEC by Ms. Hyun. Their belief: HEC should belong to the Chungs, not the Hyuns. Chung Mong-jun is the only Chung family member who can claim to be the "heir" of the Hyundai empire, built through HEC by his father, the late Chung Ju-yung. Chung Mong-koo, while the brother of Chung Ju-yung and the chairman of Hyundai Kia Automotive Group, has long distanced himself from his brother’s heritage.
Acquisition of Hyundai Group is a business risk Mr. Chung considers worth taking, sources say. Hyundai Heavy Industries’ need to build plants and shipyards would make a construction unit such as HEC indispensable. This is why the Hyundai Business Group is sure that Hyundai Heavy Industries will bid for HEC.
"The major reason why Hyundai Heavy Industries bought into HMM appears to lie in its intention to acquire HEC," a Hyundai Business Group source said, calling it a tactical distraction before their next strike.
Indeed, Hyundai Heavy Industries’ major ally, KCC, appears to be gearing up for the acquisition of HEC. KCC sold 1.82 million Hyundai Elevator common shares, its entire holdings in the company, to Schindler Holdings AG of Germany for 143 billion won. The Hyundai Group believes the sale was part of a plan to raise funds for the acquisition. KCC remains vague about this. "We have not considered such a purchase," KCC said, quickly adding, "as of now, at least."
Chairwoman’s secret shareholdings
Meanwhile, Hyundai Group is busy increasing stockpiles of ammunition. Cape Fortune, the group's ally, bought 10,000 shares on the open market, raising its stake to 10.1%. It is said that Chair Hyun has also secretly purchased a total of 300,000 shares of HMM. Her parents have stocked up on cash after selling a 1.2 billion won stake in Hyundai Securities Co. All in all, these demonstrate that Hyundai Group is highly aware of the dispute over control of the Hyundai Group and the bids for HEC.
Chairs Hyun and Chung are gearing for a head-on collision, say market observers. Now that the sale of HMM shares is complete, the first battle over control of the Hyundai Business Group will begin. And with the time to bid on HEC approaching, the war is set to intensify.
