February 21, 2003, 10:00 a.m.
From early morning, dozens of reporters had gathered in front of the entrance to the Seoul Central District Prosecutors' Office building in Seocho District.
The reason was that today, ST Group Chairman Moon Byung-kwon—under suspicion of breach of fiduciary duty—was scheduled to appear for questioning.
On one side, a group of protesters from civic organizations stood holding picket signs bearing messages condemning Chairman Moon Byung-kwon, while prosecutors' investigators and police officers guarded the entrance to prevent any possible incidents.
After some time had passed, a black Hyundai Equus slowly drove through the main gate and came to a stop in front of the building's entrance.
As the secretary seated in the passenger seat quickly got out and opened the door, Chairman Moon Byung-kwon, dressed in a gray coat, appeared with a stiff expression.
"He's here!"
"It's Chairman Moon Byung-kwon!"
The waiting reporters surged forward all at once, thrusting out their microphones as camera flashes went off in rapid succession.
Papapapak!
Bathed in the bursts of flashing lights from all directions, Chairman Moon Byung-kwon maintained a blank expression as he walked forward in silence, flanked on either side by his advisory lawyer and executive secretary.
"Take responsibility and step down as chairman immediately!"
"Severely punish Chairman Moon Byung-kwon for deceiving and betraying employees and the public!"
As the protesters shouted and waved their picket signs aggressively, attempting to push closer, the police blocked them with their bodies. Amid the chaos, Chairman Moon Byung-kwon entered the building.
He then paused briefly in front of the photo line marked on the floor with tape for press photographs.
At that moment, the sound of camera shutters erupted once more, and flashes burst from every direction.
Rattle-rattle-rattle!
Papapak!
"Chairman Moon Byung-kwon, apologize to the employees and the public!"
"Chairman Moon Byung-kwon, who mocked the shareholders—show some remorse!"
At the deafening shouts of the protesters, Chairman Moon Byung-kwon slightly furrowed his brows and glanced in their direction, but soon straightened his gaze as if nothing had happened.
The reporters jostled with the prosecution investigators surrounding him, forcing their microphones and recorders through any gaps they could find.
"Did you personally order the backdoor agreement with JP Morgan?"
"There are allegations that ST Global, a subsidiary of your group, secretly funneled company funds overseas—would you like to comment?"
"Do you admit to all the charges?"
Under the blinding flashes, camera lenses meticulously scanned Chairman Moon Byung-kwon's face, capturing every wrinkle as he stood still.
Born into a wealthy conglomerate family and having lived a life without envy, this moment was unbearably humiliating and infuriating for him.
However, his advisory lawyer had repeatedly warned him beforehand never to reveal his emotions in front of reporters, so Chairman Moon Byung-kwon suppressed the anger rising within him.
Then, just as he had practiced, he opened his tightly closed lips and spoke in a calm and composed voice.
"First, I sincerely apologize to the public for causing concern. Regarding the allegations raised, I will faithfully provide clarification during the prosecution's investigation."
Maintaining a polite demeanor, he gave a respectful bow toward the cameras in front of him. Then, with the assistance of his aides and the prosecution investigators, Chairman Moon Byung-kwon pushed through the crowd of reporters surrounding him and moved forward.
"What do you think about the civic groups demanding your resignation!"
"With all ST Group stocks plunging because of this incident, do you have anything to say to the shareholders!"
"Chairman!"
Like a pack of wild dogs unwilling to let their prey escape, the reporters clung to him tenaciously, firing off questions one after another.
But Chairman Moon Byung-kwon gave no response and simply passed through the glass doors, entering the marble-floored lobby.
***
[As of now, past 4 p.m., the investigation into ST Group Chairman Moon Byung-kwon—who appeared at the Seoul Central District Prosecutors' Office—remains ongoing. The Criminal Division 9, in charge of the case, stated, "There are many matters to investigate regarding Chairman Moon, and it is taking longer than expected," adding, "After an overnight investigation, we plan to request an arrest warrant tomorrow morning."
The prosecution is investigating Chairman Moon on allegations that, in March of last year, he secured approximately 80 billion won in unfair gains by exchanging shares at more than double their proper value on two occasions—without board approval or appropriate standards—in order to secure control of the group….]
Standing alone in his office with his arms crossed, Seok-won watched the news on television. Outside the large floor-to-ceiling window that covered one entire wall, the wide Han River stretched out below.
Listening to the reporter speaking from the Seoul Central District Prosecutors' Office, he muttered as if stating the obvious,
"Just as expected, it's turning out this way."
On top of everything, ever since the sudden search and seizure, all ST Group stocks had been sliding downward, continuing their decline.
In such a situation, if an arrest warrant were to be issued for Chairman Moon Byung-kwon, the owner risk would be maximized, and a stock price crash would be all but inevitable.
"Especially for ST Telecom, which is about to merge with its subsidiary ST IMT, this must be an absolute nightmare."
ST Telecom had planned to strengthen its competitiveness by merging with its subsidiary ST IMT, which was engaged in next-generation mobile video communication services, by exchanging shares at a ratio of 1 to 0.11276 in ST Telecom stock.
"But with this sudden owner risk erupting, ST Telecom's stock has plunged by more than 30% compared to when the merger was announced, completely throwing things into disarray."
At the time of the announcement, the calculated price of ST Telecom shares had been 243,000 won per share.
However, as of the latest check today, ST Telecom's stock had fallen sharply to below 160,000 won, making it an unavoidable issue.
"If the merger proceeds as planned under the existing terms, shareholders of ST IMT would suffer significant losses, so a large number of them will exercise their appraisal rights."
Of course, there was a possibility that the merger proposal could be rejected at the shareholders' meeting scheduled for this afternoon. However, since ST Telecom held a majority stake of 61.3% in ST IMT, it was safe to assume that such an outcome was unlikely.
"In the end, that means they'll have to buy out the shares of dissenting shareholders in cash. And unless they're fools, they'll exercise their appraisal rights—so this is going to require an additional investment of hundreds of billions of won."
Considering that ST Telecom's cash-generating ability was strong enough to bring in profits of up to 2 trillion won annually—even after excluding investment funds—it wasn't a significant burden.
The real issue, however, was the timing.
In a situation where the entire group was already shaken by owner risk, an unexpected expenditure of hundreds of billions of won would inevitably be seen as negative news and would clearly hurt the stock price.
"On top of that, there's still one more major negative factor left."
It was the downgrade in outlook by the global credit rating agency Moody's regarding ST Group.
"If I remember correctly, they lowered the outlook significantly from Stable to Negative."
If the credit rating were to fall, it would mean having to pay higher interest when borrowing funds from external sources, inevitably acting as another factor dragging ST Group's stock price down.
Seok-won raised one hand and stroked his clean-shaven chin as he murmured.
"If the owner of a company loaded with high-quality assets is shaken by legal risks and moral controversies, and the stock price has already taken a major hit, then to hedge funds—like a pack of wolves—it must look like a very appetizing target."
Even he would find the situation tempting.
At that moment, the television screen showed Chairman Moon Byung-kwon entering the Seoul Central District Prosecutors' Office building.
Watching this, Seok-won clicked his tongue and said,
"If your corporate governance is weak, you should've kept a low profile—or if you were going to pull something off, you should've done it properly."
In any case, the wheels had already been set in motion, and all he needed to do was maximize his gains during the management control dispute.
"I don't like Chairman Moon for committing accounting fraud, but that doesn't mean I can just sit back and watch foreign hedge funds swoop in and swallow one of the country's leading conglomerates at a bargain price."
Seok-won, who had already laid out a plan for how to proceed, moved into action without hesitation.
He picked up the remote control on the table, turned off the television, and walked over to his desk.
Then he grabbed the phone set to the side and dialed a saved number.
After a few rings, the familiar voice of Division Head Choi Ho-geun came through.
[Yes, Chairman.]
"How much is ST Co., Ltd.'s current stock price?"
Choi Ho-geun answered immediately.
[Having benefited from the expansion of mobile communications and internet adoption, the stock had steadily risen to 17,000 won per share, but after taking a direct hit from the owner risk, it has now slipped to 13,450 won.]
"Then that puts the price-to-earnings ratio at roughly 0.3, doesn't it?"
[That's correct. Considering that its core petroleum business is recovering and there's a high likelihood it will return to profitability this year, it is significantly undervalued.]
Seok-won spoke with the phone held to his ear.
"The stock remains weak despite expected growth in operating profit because of uncertainty over how far the ongoing prosecution investigation might expand, isn't that right?"
[That's correct. As reported in the news, if Chairman Moon Byung-kwon is actually detained and stands trial, it would effectively create a vacuum in the group's control tower, so concerns are bound to grow.]
"Owner-led management has the advantage of enabling quick decision-making and bold investment and innovation. But on the flip side, as we're seeing now, if a leadership vacuum occurs due to legal risks or other factors, the entire group can be shaken—that's the inherent weakness of owner management."
Since the Bluehole Group also operated under an owner-led management system, Division Head Choi Ho-geun refrained from adding anything rash and simply listened in silence.
"Keep an eye on how things develop over the weekend, and after the presidential inauguration, begin purchasing gradually as I instructed last time."
[Understood.]
"Since there's a high chance the decline could deepen, don't buy large volumes from the start—spread out the stake and accumulate shares little by little."
[Understood.]
After giving a few more instructions, Seok-won ended the call and set his phone down.
Then he leaned back into the plush chair and moved the mouse, bringing up the stock chart of ST Co., Ltd.—the holding company of ST Group—on the monitor in front of him.
[SK: 13,400 (1,650)]
During the call, the price had dropped by another 50 won, bringing it down to 13,400 won.
If Moody's were to downgrade the credit rating and, during the prosecution's investigation, additional large-scale accounting fraud were uncovered, panic-stricken investors would likely begin a massive sell-off, causing the plunge to continue.
In that case, even if the Asset Management Division were to aggressively accumulate shares of ST Co., Ltd., the group's holding company, the sheer weight of the negative factors would make it difficult for the downward trend to stabilize anytime soon.
Leaning back into his chair, Seok-won formed a faint smile.
"On top of that, I'll use the paper company we set up in Hong Kong to accumulate shares, so I should be able to keep my involvement hidden for the time being."
Even if others noticed the large-scale buying activity, at least in the early stages, they would likely dismiss it as nothing more than foreign investors stepping in to buy at low prices.
"If I've already begun setting things in motion, it would be a problem if Sovereign Asset Management backs off without even testing the waters after realizing I've made the first move."
To turn the tables and strip Sovereign of its gains, he had to make them step into the trap of their own accord.
Watching the long bearish candlestick on the monitor grow even longer, Seok-won's gaze gradually sank.
"Once they get thoroughly crushed, they won't dare try to toy with Korean companies so recklessly again."