Thirty years ago, an executive who wanted to build a conglomerate in South Korea had only one formula to follow: first persuade the government to provide capital and market protection, such as tariffs and regulations, then launch the business.
But in the past decade, Kang Duk-soo has built STX Group the way conglomerates were built in the West, with mergers and acquisitions funded by investors.
The process began in 2000 when Ssangyong Group, as part of a government-ordered restructuring in the wake of the Asian financial crisis of 1997-98, sold its Ssangyong Heavy Industries unit, a maker of diesel engines, to foreign investors. The new owners named Mr. Kang, a veteran at Ssangyong Group companies, as chief executive.
The following year, Mr. Kang bought a controlling stake from the foreign investors, renamed the company STX, and set out to make it the base of a new conglomerate. Within three years, STX had bought Daedong Shipbuilding, Sandan Energy and Pan Ocean Shipping, renaming each with the STX moniker.
In October 2007, STX Group made its first overseas acquisition, taking a 39.2% stake in Norway's Aker Yards, a shipbuilder that specializes in complex, high-end vessels. This year, STX purchased the rest of Aker Yards, now called STX Europe, and delisted it from the Oslo Stock Exchange.
Today, STX Group is South Korea's 19th-largest conglomerate by assets, and remains its newest. Revenue soared to 28.2 trillion won ($23.03 billion) last year from 261 billion won in 2001. Its operations in shipbuilding, which along with shipping form the group's major activities, have bucked the tide in the current global economic downturn. STX Shipbuilding and STX Europe booked multiyear orders valued at 1.3 trillion won in the first half of the year.
Mr. Kang, who turns 59 years old on Aug. 18, started his career at Ssangyong Cement in 1973 and worked at other Ssangyong companies, in departments as varied as logistics and human resources, before the spinoff that led to the creation of STX.
He spoke recently with SungHa Park at his Seoul office. The interview was translated from Korean and edited.
WSJ: What was the first merger and acquisition deal you participated in, and what did you learn from it?
Mr. Kang: When I was working for Ssangyong Cement in 1975, the company agreed to acquire Daehan Cement, South Korea's first cement company. I was a member of the due-diligence team and visited Daehan factories to value the assets. I also participated in the Ssangyong Group's acquisitions of a motor company and an investment and securities firm. Those experiences allowed me to develop the ability to evaluate a company.
WSJ: What was your first acquisition after Ssangyong Heavy?
Mr. Kang: It was Daedong Shipbuilding, which went into bankruptcy during the 1997-98 financial crisis and was under court receivership. A court-assigned manager of Daedong was an executive of our competitor and we could no longer sell any engines to it. So, when the company was put on the market, I was determined to take it over and regain market share.
Because Daedong wasn't in good shape, others devalued the company. But our due diligence saw great synergies: we could not only sell engines to the shipbuilding company but also enter the shipbuilding business. So, we bid 100 billion won, nearly double our appraisal.
WSJ: Why did some of your acquisition efforts fail, such as Incheon Oil Refinery in 2004?
Mr. Kang: We had two bidding chances at the company, because the first winner couldn't live up to its bid. But we failed in the second round as well. Another Korean company bid more than double our offer.
When I bid for the Incheon Oil Refinery, I didn't know the energy industry as well as I do now. Our bid for S-Oil [in 2006] also failed.
Oil refining and distribution is an industry that directly connects with consumers. Until then, we had done only capital industries -- shipping, shipbuilding and engines -- that were business-to-business centered. Refining is an industry that's more complex than I thought. We could have prepared more.
WSJ: In 2007, you acquired Aker Yards. How does buying a foreign company differ from buying a Korean company?
Mr. Kang: I had no international M&A experience, so I was concerned that bridging the cultural differences between Korea and the West wouldn't be easy. Making it even more difficult, unlike in South Korea, where the largest shareholder has a say in the direction of the company, in Europe the CEO has all the management authority, and the largest shareholder is considered just one of the shareholders.
In general, the CEO focuses more on short-term activities, while the owner concentrates on longer-term management. But for a company to be sustainable, having a long-term outlook is essential. I bought into Aker Yards to help our long-term development, to merge the shipbuilding technology that Europe has developed during the past century with South Korea's production know-how, and to enter the cruise-ship building business, which has been hard to do in Asia.
So when the CEO of Aker Yards sold three subsidiaries without consulting with STX, the biggest shareholder, I moved quickly to acquire 100% control in order to stay on the course I had mapped out. When we achieved that this year, Koreans who share my views were appointed as CEO and chairman of the board, though only at the holding company of STX Europe, to ensure management control. In the shipyards, few personnel have been dispatched from Seoul, because I respect the local technology and culture.
WSJ: What are key considerations for an M&A deal?
Mr. Kang: Choose an industry that you know well, and that can produce synergies with your existing businesses. We have mostly injected internal reserves when acquiring a company, and always had an exit strategy to retrieve the investment in one or two years; the acquisition could turn out differently from what you had expected.
We bought [the initial 39.2% stake in Aker Yards] solely with internal reserves of STX Offshore & Shipbuilding and STX Engine. And in the case of the purchase of STX Offshore & Shipbuilding, we had 50 billion won of internal reserves and issued 77 billion won in asset-backed securities. We bid 100 billion won for the company, which was successful, and within a year we retrieved 176 billion won via an initial public offering and foreign investment.
And, you should be confident enough to train and foster employees [of the acquired company] rather than restructuring them.
WSJ: Who has most influenced your management style?
Mr. Kang: I have the greatest respect for the late Ryuzo Sejima, who was chairman of Itochu Corp., the Japanese general trading company. He was a true strategist who epitomized Japan's postwar reconstruction. His foresight and ability to see business from a global perspective provides many lessons for today's STX and myself.
