Story of a Big Player from Gangnam

Chapter 843: Private Equity Fund (PEF) Company (1) - Part 2

The following day, Gun-Ho met the stock brokerage firm's branch manager at Le Meridien.

Gun-Ho and the branch manager sat at the table of the Japanese restaurant— Hanazono— facing each other. They were having sushi with a glass of beer.

The branch manager said, "Dyeon Korea's sales revenue must have increased a lot, haven't it?"

"That's correct."

"How much does it generate on a monthly basis these days?"

"It's making around 7.5 billion won monthly."

"I guess that it will reach 100 billion won of annual sales revenue next year."

"I guess so, unless something major comes up."

"I've read a public announcement about new manufacturing facilities in India and China."

"Right. We had a factory in India and China before, and we added an additional manufacturing facility in each of the locations."

"Oh, I see. So, your company has factories in those two countries too— China and India."

"That's right. We have one in Suzhou City next to Shanghai City, and another one in Tianjian City that is close to Beijing. We are planning to establish one more manufacturing facility in Guangdong Province in China later."

"I understand that since China has a huge continent."

"Also, I'm thinking about expanding our business to Vietnam as well."

"Dyeon Korea is a debt-free company, and I believe that it is currently loaded with a significant amount of funds after it became a public company. It wouldn't be a problem at all establishing several factories overseas. If you include the sales revenues from the companies abroad, Dyeon Korea's total sales revenue will reach 200 billion won in no time."

"Haha, well, I don't know."

"With the annual sales revenue of 200 billion won, and assuming the net profit after tax would be 5%, you will make a profit of 10 billion won every year. You can open a new company every year with the profit. I'm so jealous, Mr. President Goo."

"As you know, Dyeon Korea is a joint venture company. It's not like I can take 100% of the profit."

"That's true since it's a joint venture company with a partner. I'm curious about something, sir."

"What is it?"

"You own another company— GH Mobile. I believe that company is doing very well too. I'm wondering why you are not trying to make that company a public company. As far as I know, you are the major shareholder of that company, aren't you, Mr. President Goo?"

"Well…"

"I had a chance to look at GH Mobile's financial statements before coming here to meet you today. I understand that the company has some debts, but I believe that once it goes public, it will be able to pay off the debt in no time. Or, you can use the funds in expanding the business or making an investment in some other fields. I don't understand why you haven't made the company go public yet."

"I actually don't want it. I just want to keep GH Mobile private and run it quietly. That's nice too, don't you think so?"

"Well, if that's what you want, what can I say? I'm not in a position to tell you to do anything about your company, but I'm telling you because I just think you could do a lot of things by going public."

"I might change my mind, but for now, I have no plan to have GH Mobile go public."

"That company makes more than 100 billion won yearly, doesn't it?"

"Actually, we are anticipating making 200 billion won this year."

"Wow. That's great. A lot of companies don't even make 10 billion won per year, but their business owners act like they are owning a large company. Those business owners sit back and don't perform the daily operating work as the chair of their company, and let a CEO do the job for them. They usually drive an expensive luxurious car and would be on a power trip."

"That's right. I've seen some of them."

"When I was told that you are a big player from Gangnam, Mr. President Goo, I thought you are someone who is just making money using money by buying and selling real properties or investing in the stock market. I didn't know you are running large manufacturing companies. I do admire you, sir."

"Don't say that. You are embarrassing me."

"Our company is part of a large brokerage firm that provides total service in the financial field. We are its branch office in Gangnam District. I would like to make an arrangement for a meeting between you and our branch office's president."

"The president of your branch office? You don't have to do that. It's not like I need to take out a substantial amount of loan or something, is it?"

"Well, that's true. But, if you want to launch a large project in business, you need help from a financial institution like us."

"I might in the future, but I have no plan to do it for now."

"I understand what you mean. Well, please just disregard what I just said then. We can talk about it again when you need it."

Gun-Ho dipped a piece of sushi into the soy sauce and then sipped his beer. He then said, "Actually, I have a question for you."

"Sure. Please feel free to ask me any questions you have for me."

"When I started this joint venture company, I owned 50% of the company and my partner owned the other half."

"That sounds correct since it's a joint venture."

"And, as the company went public, we offered a part of the company shares to the public. Dyeon Korea has a total of 26 million shares now, and my portion is only 9 million."

"I see. Lymondell Dyeon also owns the same number of shares— 9 million, doesn't it?"

"According to the joint venture contract, the parties are free to sell the company shares that each owns in their sole discretion. I don't think this is going to happen, but what would happen if Dyeon Korea sells its entire shares to another company, and they cooperate to take over the operation right? I could lose my management right."

"Theoretically, that's possible."

"Lymondell Dyeon initially invested 4.5 billion won in establishing Dyeon Korea. It was not a cash contribution though, but their contribution was made with old machines."

"They made a lot of money when the company went public, right? After the company split the stock, the unit share price was 5,240 won. Assuming Lymondell Dyeon owns 9 million shares, the value of their shares is 47.16 billion won. That means that Lymondell Dyeon made 47.16 billion won after having invested 4.5 billion won."

"That's right."

"Hmm, 47.1 billion won is not an insignificant amount of money, but a global investment banking company such as JP Morgan, Goldman Sachs, and Morgan Stanley would be able to acquire Lymondell Deyon's entire shares. If one of them purchases about 4 million shares and then acquires Lymondell Dyeon's shares at 47.1 billion won, I could lose my management right."

"That's possible. It would cost them only 21 billion won to buy 4 million shares. So, they just need 68 billion won to own Dyeon Korea's 4 million shares plus the shares that Lymondell Dyeon is currently possessing. Dyeon Korea is a debt-free company with a sales revenue of more than 100 billion won. If it can make a net profit of more than 5%, those investment banking companies would be willing to acquire the shares."

"Those global investment banking companies usually make profits by buying and selling a company like Dyeon Korea. Say, it invests 68 billion won to buy Dyeon Korea's interest, and it sells it to another chemical company who wants to do M&A for 80 billion won or 90 billion won. Those banking companies could easily make the deal highly desirable for the buyer company by offering that they would lend money to the buyer company for the acquisition. For example, the buyer company can bring in only 40 billion won and take out a loan of 5 billion won to purchase a company that is worth 90 billion won."

"That's what I'm worried about."

"So, Lymondell Dyeon disappears from the picture by selling their ownership interest for 47.1 billion won, and those global investment banking companies make 20 billion won in the process. Well, I guess Dyeon Korea is a very attractive company for them to make money."