MLM Directory

Fighting the winner s curse

Summary: The faces inside KOREA S CONGLOMERATES Eugene Group has exploded in size but its leveraged buyout of electronics retailer Himart has the company struggling to improve its bottom line For a long time Eugene Group was an obscure player in Korea s corporate world until its 1 9 trillion won $1 6 billion takeover of Himart Korea s largest electronics retail chain in 2008 That event catapulted the midsized conglomerate into the public limelight and the ranks of Korea s largest business groups with more than 2 trillion won in assets for the first time The deal also marked another milestone in Eugene s flurry of mergers and acquisitions of local companies since the early 2000s nearly three decades after the group s founder Yoo Jae pil opened a small cookie company called Youngyang Confectionary in Seoul in 1969 Its voracious appetite for expansion into finance cable television logistics and retail has played a central role in the group s steep rise from a midsized construction materials producer to one of the most recognized corporate brands here But after the series of high profile mergers the group is also suffering from fallout a highly leveraged balance sheet and growing debt Now the group is in the midst of efforts to work with creditors and financial regulators to restructure and improve its cash conditions In the early days of Youngyang Confectionary its signature product was a biscuit made of flour water and salt Inexpensive and long lasting similar to hard tack it was widely popular as a meal substitute when Korea was still impoverished and in the 1970s the company won a lucrative supply deal from the military As the company s food business flourished Yoo entered another booming industry to fuel its growth construction material He began making ready mix concrete in 1979 and aggressively invested in factories for the new Eugene Corporation Business thrived as the country was going through a period of rapid construction of new industrial and residential facilities Eugene Corporation was chosen in 1986 as an official supplier for the government s infrastructure projects which gave a huge boost to its growth and helped establish it as the group s flagship unit Bolstered by booming demand for construction materials Eugene built a series of ready mix concrete plants across the country and began manufacturing other construction materials from sand to aggregates Finally the company declared it would expand into construction itself In 1997 it acquired several regional cable television network operators in Gimpo and Bucheon Gyeonggi The foray into the cable business spurred more expansion of Eugene s portfolio as it created its own cable television station and media production house aiming at producing content for its cable channels and even acquiring a broadband service provider to gain access to more viewers in a wider area The group s appetite for new businesses hardly stopped there From 2004 to 2006 it acquired seven companies from regional ready mix cement producers to a Seoul based stock brokerage The 2006 takeover of Seoul Securities later renamed Eugene Investment Securities signaled that the group was now determined to reach into finance new terrain for what had largely been a manufacturing based enterprise By acquiring Seoul Securities Eugene also gained control of its asset management and futures trading subsidiaries But this series of takeovers was made up of largely small ticket deals that were not big enough to catch attention beyond a small circle of industry observers and investors The real breakthrough came as the group gained a foothold in two whole new business arenas logistics and retail In 2007 alone the group acquired three financially struggling midsized logistics firms Logen Logistics Korea GW Logistics and Korea Logistics picking strong departments in parcel delivery storage and transportation But what pushed the Eugene Group into the big leagues was the 2008 takeover of Himart a long sought after target of Korea s major conglomerates Household names like GS and Lotte bid to buy the nation s largest electronics retail chain whose 252 branches accounted for 17 percent of the local electronics retail market by annual sales But Eugene beat all those corporate heavyweights in December 2007 stunning investors and industry observers who had viewed the smaller group as a dark horse After the series of big ticket takeovers Eugene s annual sales ballooned from 770 8 billion won in 2006 to 4 2 trillion won in 2008 while its assets also grew from 982 1 billion won to more than 5 trillion won But the group started to teeter in late 2008 when the global credit crunch threatened its balance sheet Its heavily leveraged takeover of Himart for which it borrowed 1 4 trillion won from outside investors squeezed the group hard sending its debt equity ratio to 189 percent and total debt to 940 6 billion won in June 2009 As a result the group last year was forced to sign an agreement with its leading creditor the National Agricultural Cooperative Federation to overhaul its management and financial condition Since then the group has sold some of its more recently acquired subsidiaries including its stake in Korea GW Logistics a portion of its shares in Eugene Investment Securities and several factories It also issued new shares and swapped some of the debt it owed to creditors for equity The group is scrambling to put this financial triage behind it and is mulling a plan to list shares of Himart on the Seoul stock market by 2011 a move that would improve its cash situation Baek Jae wook an analyst at KTB Investment Securities said a Himart IPO if realized will help dispel the so called winners curse of expansion at the cost of huge debt If Himart can go public there will be high expectations that Eugene can get away from the winner s curse and such expectations will be the biggest benefit for Eugene Baek said I d say it will be a big success if Himart can get as much value from stock as Eugene s takeover price The group is currently led by Yu Kyung sun the first son of the founder Yu is now the chairman of Eugene Group and CEO of its construction division Well known to be a lover of triathalons Yu took the top seat at the group at the age of 30 in 1985 and currently has the biggest stake at 16 6 percent in Eugene Corporation the de facto holding company Yu and his family including his wife sons brothers and father held a combined 50 55 percent stake in Eugene Corporation as of December 2009 Chung Jin hak CEO of Eugene Corporation s construction materials unit has been working for the company since 1994 Na Hyo seung has led the stock brokerage Eugene Investment Securities since 2009 after nearly two decades in the industry at Daewoo Securities and CJ Investment Securities Jeong Han ki CEO of Eugene Asset Management and Eugene Investment Futures is a veteran of corporate sales and marketing having worked at Shinheung Securities SK Securities and NH Securities Sun Jong koo heads Himart whose sales account for more than 60 percent of the group total He managed Eugene s sales operations starting in 1998 before which he worked for Daewoo Electronics He is also chairman of Korea Ladies Professional Golf Association By Jung Ha won hawon joongang co kr Copyrights ⓒ JoongangIlbo Joins com All rights reserved The faces inside KOREA S CONGLOMERATES Eugene Group has exploded in size but its leveraged buyout of electronics retailer Himart has the company struggling to improve its bottom line For a long time Eugene Group was an obscure player in Korea s corporate world until its 1 9 trillion won $1 6 billion takeover of Himart Korea s largest electronics retail chain in 2008 That event catapulted the midsized conglomerate into the public limelight and the ranks of Korea s largest business groups with more than 2 trillion won in assets for the first time The deal also marked another milestone in Eugene s flurry of mergers and acquisitions of local companies since the early 2000s nearly three decades after the group s founder Yoo Jae pil opened a small cookie company called Youngyang Confectionary in Seoul in 1969 Its voracious appetite for expansion into finance cable television logistics and retail has played a central role in the group s steep rise from a midsized construction materials producer to one of the most recognized corporate brands here But after the series of high profile mergers the group is also suffering from fallout a highly leveraged balance sheet and growing debt Now the group is in the midst of efforts to work with creditors and financial regulators to restructure and improve its cash conditions In the early days of Youngyang Confectionary its signature product was a biscuit made of flour water and salt Inexpensive and long lasting similar to hard tack it was widely popular as a meal substitute when Korea was still impoverished and in the 1970s the company won a lucrative supply deal from the military As the company s food business flourished Yoo entered another booming industry to fuel its growth construction material He began making ready mix concrete in 1979 and aggressively invested in factories for the new Eugene Corporation Business thrived as the country was going through a period of rapid construction of new industrial and residential facilities Eugene Corporation was chosen in 1986 as an official supplier for the government s infrastructure projects which gave a huge boost to its growth and helped establish it as the group s flagship unit Bolstered by booming demand for construction materials Eugene built a series of ready mix concrete plants across the country and began manufacturing other construction materials from sand to aggregates Finally the company declared it would expand into construction itself In 1997 it acquired several regional cable television network operators in Gimpo and Bucheon Gyeonggi The foray into the cable business spurred more expansion of Eugene s portfolio as it created its own cable television station and media production house aiming at producing content for its cable channels and even acquiring a broadband service provider to gain access to more viewers in a wider area The group s appetite for new businesses hardly stopped there From 2004 to 2006 it acquired seven companies from regional ready mix cement producers to a Seoul based stock brokerage The 2006 takeover of Seoul Securities later renamed Eugene Investment Securities signaled that the group was now determined to reach into finance new terrain for what had largely been a manufacturing based enterprise By acquiring Seoul Securities Eugene also gained control of its asset management and futures trading subsidiaries But this series of takeovers was made up of largely small ticket deals that were not big enough to catch attention beyond a small circle of industry observers and investors The real breakthrough came as the group gained a foothold in two whole new business arenas logistics and retail In 2007 alone the group acquired three financially struggling midsized logistics firms Logen Logistics Korea GW Logistics and Korea Logistics picking strong departments in parcel delivery storage and transportation But what pushed the Eugene Group into the big leagues was the 2008 takeover of Himart a long sought after target of Korea s major conglomerates Household names like GS and Lotte bid to buy the nation s largest electronics retail chain whose 252 branches accounted for 17 percent of the local electronics retail market by annual sales But Eugene beat all those corporate heavyweights in December 2007 stunning investors and industry observers who had viewed the smaller group as a dark horse After the series of big ticket takeovers Eugene s annual sales ballooned from 770 8 billion won in 2006 to 4 2 trillion won in 2008 while its assets also grew from 982 1 billion won to more than 5 trillion won But the group started to teeter in late 2008 when the global credit crunch threatened its balance sheet Its heavily leveraged takeover of Himart for which it borrowed 1 4 trillion won from outside investors squeezed the group hard sending its debt equity ratio to 189 percent and total debt to 940 6 billion won in June 2009 As a result the group last year was forced to sign an agreement with its leading creditor the National Agricultural Cooperative Federation to overhaul its management and financial condition Since then the group has sold some of its more recently acquired subsidiaries including its stake in Korea GW Logistics a portion of its shares in Eugene Investment Securities and several factories It also issued new shares and swapped some of the debt it owed to creditors for equity The group is scrambling to put this financial triage behind it and is mulling a plan to list shares of Himart on the Seoul stock market by 2011 a move that would improve its cash situation Baek Jae wook an analyst at KTB Investment Securities said a Himart IPO if realized will help dispel the so called winners curse of expansion at the cost of huge debt If Himart can go public there will be high expectations that Eugene can get away from the winner s curse and such expectations will be the biggest benefit for Eugene Baek said I d say it will be a big success if Himart can get as much value from stock as Eugene s takeover price The group is currently led by Yu Kyung sun the first son of the founder Yu is now the chairman of Eugene Group and CEO of its construction division Well known to be a lover of triathalons Yu took the top seat at the group at the age of 30 in 1985 and currently has the biggest stake at 16 6 percent in Eugene Corporation the de facto holding company Yu and his family including his wife sons brothers and father held a combined 50 55 percent stake in Eugene Corporation as of December 2009 Chung Jin hak CEO of Eugene Corporation s construction materials unit has been working for the company since 1994 Na Hyo seung has led the stock brokerage Eugene Investment Securities since 2009 after nearly two decades in the industry at Daewoo Securities and CJ Investment Securities Jeong Han ki CEO of Eugene Asset Management and Eugene Investment Futures is a veteran of corporate sales and marketing having worked at Shinheung Securities SK Securities and NH Securities Sun Jong koo heads Himart whose sales account for more than 60 percent of the group total He managed Eugene s sales operations starting in 1998 before which he worked for Daewoo Electronics He is also chairman of Korea Ladies Professional Golf Association By Jung Ha won hawon joongang co kr Copyrights ⓒ JoongangIlbo Joins com All rights reserved

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