POSCO recently exchanged stakes with Hyundai Heavy Industries and Dong Kuk Steel Mill Company Limited (DKS) in order to protect its management rights in preparation for a hostile takeover attempt. POSCO is working to secure as many friendly shareholders as possible, asking Woori Bank and the National Agricultural Cooperative Federation to buy its stock.
But no matter how many friendly shareholders it might secure, POSCO is still stuck with the fact that foreign investors control more than 60 percent of its shares. As such, POSCO is hoping for the introduction of a Korean version of the Exon-Florio provision, which is an American law that was designed to protect the country's key industries from foreign takeovers. Rep. Lee Byung-seok, a Grand National Party lawmaker from Pohang, has submitted a bill to the National Assembly that would do the same thing.
POSCO is scrambling for protection because of Lakshmi Mittal, the president of Arcelor Mittal, the world's largest iron and steel company. Without building a single steelworks himself, Mittal, an Indian-born businessman, has become the world's steel king through a series of brilliant takeovers. He's a bit like J. P. Morgan, the American steel magnate who created U.S. Steel in the early 20th century by merging several iron and steel companies, including Carnegie Steel. Last year, Mittal took over Arcelor, the world's second-largest iron and steel company. If it's true that he's eyeing POSCO as his next target, then the situation is truly serious.
POSCO made the single largest contribution to helping Korea achieve rapid economic growth. Its success was the point of departure for Korea's heavy industries, including cars and shipbuilding. POSCO was once the world's second iron and steel maker, but it now ranks fifth in that category. But POSCO is still the world's leader in terms of performance, including cost competitiveness, financial structure, and profitability. It is one of a few conglomerates that South Korea can truly brag about.
And that makes it all the more regrettable to see POSCO squirming now. But we should ask what POSCO was doing while Mittal built his mighty empire. A few years ago Mittal couldn't hold a candle to POSCO. POSCO had long been one of the world's top steel companies, while Mittal was an obscure business in a remote area.
Mittal began in 1976 with an electric-arc furnace steel plant in Indonesia that his father had taken over. The plant's annual production capacity was 60,000 tons. By comparison, POSCO's first blast furnace which went online in 1973 could produce 1.03 million tons. In 1989 Mittal bought out a state-run steel company in Trinidad and Tobago.
In 1992, he bought a steel plant in Mexico that the Mexican government had shut down after investing US$2.2 billion. Mittal paid $220 million for it. Out of that, $25 million came from his own pocket -- the rest he borrowed from the Mexican government. In 1995 he bought a steel plant in Kazakhstan and immediately laid off a third of its 83,000 workers. The remaining workers had their wages frozen for over 10 years. His strategy was buying up insolvent steel companies in developing countries or in Eastern Europe and reviving them through merciless restructuring.
Despite a clear lead in technology, money, and management, POSCO allowed itself to be outgrown by Mittal. Why? Maybe because it didn't have the funds to invest overseas after expanding its facilities in Pohang and Gwangyang. But more importantly, it didn't hit upon the idea of buying foreign enterprises and fostering them as its own. This is not a problem limited to just POSCO, it's a problem shared by many South Korean enterprises. Despite their reputation for corporate takeovers at home, Korean companies are no match for foreign rivals when it comes to international acquisitions. This is because our Korean style of management fails to cultivate internationally-minded executives, and that has left Korean enterprises the targets of foreign takeover hunters. More important than taking reactive measures to deflect foreign takeovers is the need to imbue domestic companies with a more global hunter spirit.
