“Let’s get our act together,” Chairman Im Jin-yong was looking at with a strange expression.
“What’s wrong?”
“Ah, it’s nothing. Let’s go in.”
Ellie asked in a small voice.
“Are you really okay?”
“Of course.”
“Do you realize it’s been a bit strange since yesterday?”
I made a vague response.
“I just sotis zone out.”
What does it an that Seosung Electronics is the second-largest shareholder of Karlos?
Currently, the largest shareholder of Karlos is obviously OTK Company, which holds 96 percent of the shares. Then, Deril has 1.5 percent, and the remaining 2.5 percent is divided among the executives.
For Seosung Electronics to beco the second-largest shareholder, they would need to issue new shares assigned to Seosung Electronics or buy the shares held by OTK Company…
I used to discuss these things with Taek-gyu after seeing Oracle, but right now he’s playing on the other side of the Pacific. Should I give him a call?
While I was lost in these thoughts, Chairman Im Jin-yong and Ellie exchanged greetings.
“Nice to et you. I’m Im Jin-yong, Chairman of Seosung Electronics.”
“Nice to et you. I’m Ellie Kim, a lawyer from the legal team of the Korean branch of Golden Gate.”
This was the first ti they had t in person.
Of course, Ellie knew Chairman Im Jin-yong. And it was the sa for Chairman Im.
“I’ve heard a lot about you. I understand you moved from the Asian branch to the Korean branch with Director Oh Hyun-joo and have played a significant role in OTK Company’s various investnts.”
He knows quite a bit.
Ellie smiled and said, “Thank you for saying that.”
Chairman Im Jin-yong led us inside.
“Alright, let’s go in.”
Hank McDonnell, the head of the Seosung Electronics Research Institute, greeted us and guided us through the facility.
Everyone was dressed casually, moving about freely. Among the employees, several Koreans were visible.
We toured the research institute, receiving briefings from the researchers.
All tests, including trial runs, were already completed, leaving only mass production. However, there are several hurdles to that.
“The technology presentation is in three days. Specific plans for the new car will also be unveiled then.”
As I listened, I thought about the recent prophecy.
It was natural for Chairman Im Jin-yong to appear here for that reason, right? If so, what proposal could he possibly have?
Issuing new shares to a third party? Or perhaps a request to buy shares?
Despite spending so much through the Herman acquisition and stock buybacks, Seosung Electronics still holds nearly 50 trillion won in cash. This amount could easily acquire a substantial car company.
Of course, even if they offered that money, I wouldn’t sell CarOS.
Lost in thought, I subtly stood up.
“I’ll be right back; I need to use the bathroom.”
Once inside, confirming that no one was there, I called Taek-gyu. Although it was night in Korea, he answered imdiately.
[What’s up?]
“I’m at the research institute right now…”
I inford him about eting Chairman Im Jin-yong and the prophecy.
Taek-gyu replied, seemingly surprised.
[Oh! Seosung is the second-largest shareholder? Does that an they will buy our shares?]
“That seems likely. But since there’s no urgent need for cash, I don’t have a reason to sell shares at this point. I’d rather issue bonds.”
[Then wouldn’t they make so proposal that could benefit us too? Think of the Seosung SB situation.]
“Thinking about the Seosung SB situation…”
In that mont, sothing ca to mind.
“I think I have an idea of what kind of proposal they might make.”
[What is it?]
“I’ll tell you later.”
***
We sat in the eting room, sipping coffee. Chairman Im Jin-yong gazed out the window. The weather was sunny, just like yesterday.
“Coming from Seoul to here, the air is definitely better.”
“Is there still a lot of fine dust these days?”
At my question, Im Jin-yong shook his head.
“Of course. I don’t know when it beca so hard to see a clear sky in Seoul. On bad days, it’s hard to tell if I’m in Seoul or Beijing.”
He probably didn’t co all the way to the U.S. just to get so fresh air.
He is the chairman of the Seosung Group. There are many subsidiaries to manage, not just Seosung Electronics.
He must be busy handling important schedules, so coming here ans there’s a compelling reason.
Im Jin-yong casually started talking.
“I have sothing to discuss. I’d like to speak with you two privately…”
“I’ll step out for a mont.”
I stopped Ellie, who was about to get up, and turned to Im Jin-yong.
“It’s fine, you can just go ahead.”
Im Jin-yong looked slightly surprised, glancing back and forth between Ellie and . Then he seed to realize sothing, his expression shifting to one of surprise.
“Are you two…?”
“You’re probably thinking correctly.”
At my words, Im Jin-yong burst into laughter.
“Haha, this is surprising. I thought you were just focused on work, but turns out you’re dating as well.”
“I’d appreciate it if you kept this a secret.”
I’m not a celebrity, and I don’t want my personal life in the dia. It could also interfere with Ellie’s work.
“Of course. Anyway, congratulations.”
Though Im Jin-yong belongs to the younger group of chaebols, he has likely been thoroughly educated since childhood to inherit the group. In contrast, I’ve only attended business school for a year and a half.
Naturally, his abilities in managent and negotiation far surpass mine. His unannounced appearance in this eting is likely a strategy to gain an advantage in negotiations.
However, if you know in advance what the other party will propose, you can prepare a counterasure.
Chairman Im Jin-yong brought up the topic.
“The biggest issue in mass production of autonomous driving hardware is the price. We have tried to lower the unit cost through modularization, but as of now, it’s unrealistic to go below $30,000.”
Compared to the equipnt mounted for experints costing over $100,000, it’s not even a third of that price, but…
“Essentially, it’s the price of a car.”
“The prices of various sensors like 3D caras, LIDAR, radar, and ultrasound are also expensive, and the costs for AP and semiconductors are significant as well.”
Everyone knows that autonomous driving is a great technology. However, to sell a product, a realistic price must be presented.
“Isn’t there a way to lower the price further?”
“There are two thods. First is to establish a mass production system through large-scale facility investnt, and second is for Seosung Electronics to give up a portion of its margin. Then it could be lowered to $15,000. But to do that, we need assurance that both companies will continue to cooperate.”
I could guess what he was trying to say, but I pretended not to understand and asked.
“Are you looking for a long-term contract or an exclusive agreent?”
“I’m thinking beyond that.”
“What is it?”
Chairman Im Jin-yong looked at and said,
“I would like to propose a share exchange between Seosung Electronics and CarOS.”
“……”
As expected!
***
Seosung Electronics earned more than 40 trillion won in operating profit last year alone. This level ranks among the top companies globally.
To return value to shareholders, it conducted several large-scale stock buybacks, holding an impressive 13% of its common stock as treasury shares.
Initially, there was a prevailing opinion that the treasury shares would be used for converting into a holding company. However, since the group is already fully controlled, there was no need for that.
Chairman Im Jin-yong has repeatedly stated that he does not intend to split the business divisions or convert to a holding company.
As a result, there were various opinions internally about how to utilize the treasury shares.
What shareholders mainly desire is a cancellation of shares. By doing so, they can increase the per-share value without paying any taxes.
But are they suggesting using the treasury shares now to acquire a stake in CarOS?
In this case, Chairman Im Jin-yong has two advantages. First, he can acquire a stake in CarOS without spending money imdiately, and second, he can secure friendly shares equivalent to the amount of treasury shares given.
From our perspective, it’s not a bad deal. Seosung Electronics stock is certainly worth considering.
The crucial point is the exchange ratio. The value of Seosung Electronics has already been determined by the market. After reaching an all-ti high of 2.61 million won, the stock has since declined to around 2.3 million won, with a market cap of about 300 trillion won (including preferred shares, it rises to 330 trillion won).
So, what is the value of CarOS?
“That’s a good proposal, but what do you think about the ratio?”
Chairman Im Jin-yong responded as if he had been waiting for the question.
“I would like an exchange ratio of 1 to 4, where 7.5% of Seosung Electronics’ treasury shares secures 30% of CarOS’ stake.”
This implies that CarOS is valued at a quarter of Seosung Electronics, or 75 trillion won. That’s more than GM’s market cap and even exceeds Nikola’s.
Considering I have already invested about 30 trillion won, this ans an additional premium of 45 trillion won.
It’s a more generous offer than I expected. Ellie also seed slightly surprised.
I pretended to think and then replied, “I agree with your proposal, but I believe we need to think about the ratio a bit more.”
Chairman Im Jin-yong tapped the table with his finger and said,
“Is that so? In fact, the 1 to 4 ratio was set a bit overly ambitiously from my perspective. I wonder if the shareholders will agree.”
Could that be true?
Naturally, Chairman Im wouldn’t make such a proposal out of consideration for . He must have deed it beneficial for himself and Seosung Electronics.
In a system managed by professional managers, one might expect otherwise, but in a chaebol managent system, decision-making occurs in a top-down manner. Therefore, the chairman’s will is paramount.
So, how strong is Chairman Im’s will?
I recalled the vision I had seen earlier.
If you already know the outco, you can guide the negotiations in a much more favorable direction.
“What about a 1 to 2 ratio?”
At my words, Chairman Im looked incredulous.
“Are you serious?”
“Of course.”
“A 1 to 2 ratio would value CarOS at 150 trillion. Do you really think it’s worth that?”
“Not at present, but the future is different. Nikola, which can’t sell even 100,000 units per year, has a similar market capitalization to GM, which sells 10 million units annually. This is because Nikola’s future value is evaluated so highly, right? The sa can be said for CarOS.”
Even if internal combustion cars transition to electric vehicles, for drivers, it’s hard to find differences other than reduced fuel costs and a change in charging thods.
However, if a car that was previously driven manually starts moving on its own, much will change.
I added, “Moreover, unlike Nikola, we have secured sufficient production capacity.”
Currently, Nikola is struggling in a production hell. No matter how well items sell, it’s pointless if production fails.
Chairman Im spoke confidently.
“To comrcialize autonomous driving, hardware performance must be supported. Only Seosung Electronics worldwide has cutting-edge technology and a vertically integrated mass production system.”
Realistically, finding a better partner than Seosung Electronics is difficult. That’s why even competitors like NPL rely on Seosung Electronics for parts.
Seosung Electronics is the largest IT manufacturer in the world, but it lacks its own software. Consequently, it has often been dragged along by software companies.
Take smartphones, for instance: Seosung Electronics creates and markets the products, but companies like Google earn money through various app fees.
This is why they’re trying to acquire partial ownership of the software held by CarOS through a stake exchange.
Exchanging shares is certainly a way to establish a solid trust relationship. However, I have no intention of being dragged along in negotiations.
I leaned back and said, “NPL makes its PCs and smartphones using its own OS. On the other hand, Google and Microsoft adopt a strategy of selling OS to hardware manufacturers or consurs.”
There’s no definitive answer as to which approach is correct.
I smiled and remarked, “If we offer to supply autonomous driving software, there will be plenty of companies that can handle vehicle manufacturing on their own.”
It highlighted that collaboration with Seosung Electronics is not a necessity.
Chairman Im Jin-yong smiled but had a look in his eyes as if he had been caught off guard.
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