Story of a Big Player from Gangnam

After Mr. Brandon Burke left Gun-Ho's hotel room, Gun-Ho and Professor Han were still in the room.

Gun-Ho said to Professor Han, "Thank you for your help today. It was a fantastic interpretation work."

"It was just interpretation work. What could be fantastic about it?"

"It was very natural and didn't cut the conversation flow at all. It was very smooth overall. I do like your pronunciation as well."

"I had fun too. The real business world is very interesting as I have always expected."

"No, it's not fun. Which part of what I just did is fun?"

"Well, it is fun for me."

"I'm going back to Korea tomorrow. Well, let's go outside and have a drink together."

"There is a Chicken Valley downtown Seattle. Let's go there."

Gun-Ho and Professor Han went to the Chicken Valley and had chicken dishes with beer.

"Let's have a toast," Professor Han first suggested.

Gun-Ho replied, "Sure. For the lonely man in the Northwest of the U.S.!"

"Haha, well, I will toast for the great investor who fled from Korea!"

The two men clinked their glasses to each other's and started gulping their beer.

After finishing his glass of beer, Professor Han asked, "I want to ask you something, President Goo."

"Sure, what do you want to know?"

"You talked with Mr. Vice President Brandon Burke earlier about the capital increase without consideration by distributing the company shares to the shareholders including the minority shareholders."

"Yes, I did. What about it?"

"Vice President Burke mentioned that it was done for your own profits. How could distributing the shares be your own benefit?"

"Let's say that this company has 1 million shares in total, and 10% of them, which would be 100,000, are owned by 500 individuals, and the remaining 900,000 shares are owned by one major shareholder. And, the price per share is 10,000 won."

"That makes the company's capital 10 billion won."

"That's correct. 500 small shareholders own 1 billion won, and the major shareholder owns 9 billion won."

"That's right."

"Say, this company goes public. Once it goes public, the appraised value of the company's share will skyrocket. That's because the stock value is determined based on the company's projected future."

"Of course the stock value will increase significantly."

"The share price will go up from 10,000 won to 50,000 won. The major shareholder's shares are now worth 45 billion won, and the small shareholders now own 5 billion won."

"That sounds correct."

"Say, this company made a profit of 10 billion won, and it didn't distribute dividends, but instead, it decided to increase the capital without consideration using the profit. Since the stock value per share is 10,000 won, the major shareholder will receive 900,000 shares while the 500 small shareholders will receive 100,000 shares. Now, the major shareholder owns 1.8 million shares in total, and the other 500 shareholders own 200,000 shares in total."

"That sounds right."

"Say, this company successfully went public, but the price of each share increased by 4 times instead of 5 times as initially expected, because it has just too many shares. So, the price per share is 40,000 won, and the appraised value of the total shares that the major shareholder is holding is 72 billion won while the 500 small shareholders have 8 billion won."

"Hmm."

"What would the major shareholder choose? Would he prefer to take 72 billion won by increasing the capital without consideration using the company's profit and then going public which would result in increasing the price of each share by 4 times? Or, would he prefer to receive the dividend of 900,000 won out of 10 billion won of profit first? After going public, the price of the share would increase by 5 times; so, he would take 54 billion won in total by adding 900,000 won that he received as dividend to his share value of 45 billion won?"

"72 billion won certainly sound better."

"Right? 72 billion won is what a smart major shareholder would choose, right? Increasing the capital without consideration works favorably for the major shareholders at the end. The employees will be very happy to have an opportunity to get the company shares, but the major shareholders are gaining much more profits without the employee's clear acknowledgment of what was really happening."

"Hmm."

"That's why Mr. Brandon Burke doesn't look so happy about it. He is in a powerful position in the company as its vice president, but he is not one of the major shareholders."

"That's why Mr. Burke said to you that 'you are not distributing the shares to the employees because you cherish your workers that much, but because it will bring enormous income to you.'"

Professor Han nodded his head as he understood what Mr. Burke meant earlier.

"I have one more question for you if you don't mind me asking. You talked about screws. I don't know much about machines, but when Mr. Brandon Burke said that it would be your job convincing the manufacturing company's president, what does he mean by convincing the president? What are you supposed to convince him with?"

"It's money."

"Money?"

"Say, the manufacturing company selling its machine to Lymondell Dyeon for 100 million won. What would he say if I offer him to buy the same machine for 150 million won? Would he be swayed by my offer or not?"

"He would very well be swayed."

"I'm pretty sure that Lymondell Dyeon and the machine manufacturing company made a Machinery Delivery Agreement."

"Hmm."

"I believe that according to the agreement, the machine manufacturing company is not supposed to provide their products to Lymondell Dyeon's competitor companies without Lymondell Dyeon's explicit consent, or something like that. It's an unfair agreement for the machine manufacturing company."

"Hmm."

Gun-Ho continued, "However, when the manufacturing company's president faces the opportunity to make 150 million won— not even 120 million won but 150 million won— instead of 100 million won, he would start thinking of breaching the contract that he made with Lymondell Dyeon."

"You mean that he might sell their products under the table?"

"I heard that there is a saying in the U.S., 'Money talks everything.' It means that it's money that talks, not a person nor good faith or whatever, but it's money that talks."

"Hmm."

"It's not me who would convince the machine manufacturing company's president, but money will do the job."

Professor Han nodded his head as he took a sip of his beer. And, he added, "I'm merely a scholar who is good at just theory."

Gun-Ho came back to Korea from his trip to Seattle.

It was Monday, and Gun-Ho went to work in GH Mobile in Jiksan Town.

He first stopped by GH Mobile's new factory— the factory no.2. Director Jong-Suk Park was not there, but one mid-level manager quickly came to Gun-Ho to greet him.

Gun-Ho asked him, "Are the machines installed completely?"

"Yes, sir. They are all in place now."

"Director Jong-Suk Park is not coming to this location any longer?"

"He does stop by here sometimes, but I'm the one who stays here all day long."

"Hmm, I see."

Gun-Ho took a tour of the second factory, being led by the mid-level manager. He went to the area where injection molding work was being done, and the storage area where the completed products and semi-manufacturing products were piled up, and finally the testing area. When the workers spotted Gun-Ho in the production site, they tried to work harder while lowering their heads. The supervisors and team leads approached Gun-Ho to greet him.

"Do you see any difference while working in this location when you compare it with the previous production site?"

"There is no big change, sir."

"How many workers are here now?"

"We currently have 100 workers in this location. I was told that all new hires will be located on this production site from now on. Mr. President Song announced it this morning during the executive meeting."

"So, we have about 400 workers in the factory no. 1."

"That's correct, sir."

"Is there anything that you would like to improve or suggest for this site?"

"We would love to have a company cafeteria here. It takes time for us to all move to the factory no.1 to have lunch every day, and it's not convenient or efficient at all."

"Did you tell Mr. President Song about it?"

"Yes, I made the suggestion to him this morning."

"Okay then. Keep up the good work."

"Yes, sir."

The plant manager gave a deep bow to Gun-Ho before getting back to his work.