Across the street, riot police in helmets and protective gear stand in straight columns. From where I stand, I can see most of them are kids, likely serving their military duty. They look more scared than the demonstrators.
“What’s all this then?” Jack says, eyes widening.
I read the placards the protesters wave. DOWN WITH THE PARKS! ILSUNG BEFORE PARKS! DANGYUL!! UNITY.
“A union protest,” I say. “It looks like the Machinists Union. From Ilsung Motors.”
“Oh, great,” he says. “Just great.”
“My father says demonstrations are the flower of democracy.”
“Yeah, well, they look like pretty angry flowers.”
When I was growing up in Seoul, some evenings there would be people gathered in our living room. A dozen men and women, some workers, a few college students, would come late in the evening to talk with Abuji. They called him Sunseng-nim, Teacher, and talked in hushed tones about the labor oondong. My parents thought I was asleep, but I could hear them through my bedroom walls. The visitors talked about how the workers needed to get organized, to fight the systematic oppression by the conglomerate owners in collusion with the Park government. I remember the urgency in their voices, the sweaty desperation of their words as they discussed their struggle for workers’ rights. They said they needed leadership. “Sunseng-nim,” they pleaded, “you must lead us.” They would leave right before midnight, to beat the martial-law curfew, going as stealthily as they came.
“Freezing their asses off out here,” I say, “is what they look like. Let’s get them some hot coffee.”
Jack follows me into a Dunkin’ Donuts around the corner. We order fifty cups of American and carry them in cup-holder cartons, bunching them in each hand.
When we give them the coffee, the protesters break their chanting to say to us, “Aigo, kamsahapnida.” They receive the cups from us with two hands. They ask if we’re with the Citizens for Solidarity activist group. We shake our heads, Anyo. They look from me to Jack and say, their voices filled with hope, “Then you must be with the international press?”
Before we can deny it, a murmur of excitement ripples across the throng sitting under the tarpaulin. Wehshin, they nod among themselves. Foreign press.
“You must publicize our story,” one of the men says. “Our plight, our struggle.” He has an oily, white-flecked stubble and lips turned blue from the cold.
“It’s our company,” says another, older man. “Not the Park family’s. Our sweat and toil.”
“Most of us, we’ve worked at this group our entire lives. We deserve to be treated with human jonumsung.” Dignity.
Others behind him shout in unison, Jonumsung!
I crouch down and ask the older man, “You’re protesting working conditions at the factory?”
“We can take the tough working conditions,” he says. “All of us are used to hard work. We’re willing to make sacrifices. All we want is to keep our jobs.”
They cry, “Job security!”
“Layoffs,” I say, half to myself.
“We work ourselves to the bone, the Parks and management drive our company into the ground, and we suffer the consequences. With our jobs. Nearly one thousand rank and file dismissed already. We hear there’s another, bigger round of layoffs coming. Rumors of a sale to a foreign company, who’ll insist on even bigger cuts.” His eyes well up. “How are we supposed to live? Support our families?”
I think of the labor leaders making their case to Abuji in our old home, beseeching him for help. I remember hearing him talking all night with Umma after they had left. Abuji telling her he must help; Umma worrying about his safety. I’ve never belonged to a union, but I know of the laborers’ anger; of the smoking-hot anger at a society that fosters inequality and lets injustice fester; of the searing humiliation born of a lifetime of indignity; of the frustration of impotence in the face of a cruel and uncaring world. I’ve never felt hunger, but I know of their soul-sapping desperation born of imminent poverty. I’m not a father, but I think I know of their yearning for a better life for their children. Their cry is a thunderclap across the canyons of downtown straight to my bosom. I know Abuji would think I belong down here with them rather than with executives in a suite high up in the office building, discussing deals and fees and money.
The older man sees the look on my face, and he grips my hands in his. He says I must talk to the head of their union, Daehan NoChong. To get the full story.
I promise I will.
“You make a fine capitalist,” Jack says, dragging me away, “with that bleeding heart of yours.”
My ears pound with the demonstrators’ chants as we go up the elevator. The conference room is on the eighth floor, which is really the seventh floor; there is no fourth floor in Korean buildings. Four, sah, sounds like the character for death.
“What a lame superstition,” Jack says, trying to draw me out of my somberness.
I point to the button for the thirteenth floor. “Don’t see many of those in the US.”
“Bro, whose side are you on?” he says, with ostentatious concern. “You better not be going native on me.”
As the elevator doors open, he says, “Now, put our war faces on, shall we?” He holds out a fist for a bump.
The Ilsung PTF team is waiting for us when we file into the conference room. The head of Group Strategy, his deputy, and the CFO of Motors. A group kept small to ensure deal confidentiality. The deputy and the CFO have their notebook computers opened on the table, which takes up most of the room. There is a small, wilting Christmas tree in the corner, over a month past its expiration date.
“Will there be anyone else?” says the CFO, looking around. He might as well ask, Any adults joining?
Jack answers, with the charm he reserves for clients, “Shane and I are honored to be serving the Ilsung Group on this important assignment.” I’m just a bit impressed with the dose of Asian humility Jack has picked up, though, with him, it’s hard to tell how much of it is tongue in cheek.
Wayne had explained to me the Motors venture was a vanity play by the old man, a well-known car aficionado. The chairman used to race cars in his day. On quiet Sunday mornings, Wayne said, his father would take him out in his Bugatti Chiron, the only one in Korea, and whiz around the narrow, serpentine streets of Itaewon. He never saw him so happy as when he was behind the wheel. On an owner’s whim and a nine-billion-dollar loan from the group’s main banks, Ilsung Motors was launched four years ago.
But Motors has become an albatross around the Group’s neck, making it debt-laden, hemorrhaging cash. Now over half of the original loan is coming due, and the creditors are threatening to exercise default on Electron, the loan guarantor. So Wayne has convinced the chairman to sell Motors. To save the group, in his words.
Jack hands out presentation books labeled “Project Thunderball,” the product of three near-all-nighters by us. Our M&A head, Conway, likes to name big assignments after James Bond movies. Wayne liked Thunderball better than his internal code name, Operation Triage.
“We’ve taken the liberty,” Jack says, “of putting together a preliminary timetable and responsibility checklist, in tab one. The gate in the first month will be our own due diligence. So we know what we’re selling to the buyers.” To market a dog with fleas, you need to know how many fleas there are.
“We’ve taken a crack at the draft confi info memo,” Jack continues. “The primary selling doc. Obviously, we’ll need substantial input from you. Were you planning to include your financial forecasts for this year and next?”
The blank looks on the Ilsung guys’ faces show they have no forecasts. They’re not even projecting to last the year. The situation is more dire than Wayne let on.
I think about the laborers protesting outside in the rain. Do they have any idea their company is going down the toilet?
“All-righty then,” Jack says, with false cheer. “Let’s talk about the buyers. You can see in section three the potent
ial buyer list, prioritized by degree of appetite for this asset. All strategics, all globals, for a deal of this size.
“Daimler-Benz of Germany, followed by General Motors of the US, and Renault of France. Toyota of Japan a long shot, given their own difficulties. As you can see, we did up a brief profile and ability-to-pay analysis for each buyer. Next to each buyer name is the name of the Phipps coverage banker for that company.”
“Small list,” observes the Strategy head. His head seems incongruously large for his body.
“Yes, it’s a limited universe,” I say. “But, remember, at the end of the day, all it takes is a single buyer.”
“I have sold,” Jack adds, “plenty of companies with just one buyer starting out. It’s a can-do.” He exudes confidence, just as we’re taught, the key in any con game.
“So, what price will we get?” says the head. At the end of his day, price is all that matters.
“If I may,” Jack says evenly, “the valuation is the valuation. You can see in the last section, we worked up a DCF, uh, discounted cash flow analysis, using our own assumptions in the forecasts. Also precedent transactions and public comps. Buyers will look at the various valuation methodologies, but my experience tells me their pricing will be based on an EBITDA multiple. To get the price up, though, it’s critical that we create competition, or at least the perception of competition—”
The Strategy deputy raises his hand, as if he were in a classroom. “What is this . . . E-bida?” he says. A Korean American, based on his fluent English.
“Christ,” Jack says through clenched lips. “These guys don’t know how to spell M and A.” He holds his smile.
“It’s the operating cash flow of the company,” I tell the deputy. “More important than net income. Think of cash flow as the lifeblood of the company.”
“Yeah, when it stops flowing,” Jack adds, helpfully, “you die.”
The Ilsung guys look at one another.
“We also did a sum-of-the-parts valuation,” Jack says. “We think your commercial vehicles division is a cash cow. Valuable on its own. If we sell it separately from the rest of T-ball, it could fetch you higher total proceeds.”
“Labor union will oppose,” says the CFO.
Jack shoots me a glance. “Yeah, we saw what they’re like, downstairs. Probably better if we don’t tell the union. Let’s keep it on a need-to-know basis.” He puts a firm hand on my thigh to discourage me from saying anything else.
The door swings open without warning, and Wayne pokes his head in. “Doing the Lord’s work?” he says, in English. His hearty laugh fills the airless room. Pa ha ha ha.
The Ilsung team sits up straight. The head reflexively starts to brief him: “Buhwejang-nim, we were just going over the bloody company—”
“I’m sure,” the Prince says, waving him off, “in good hands. Soogo!”
With that, he taps me on the shoulder and whisks me out of the room. I can feel the Ilsung managers’ stares on my back.
*
Wayne brings me to his office upstairs, a formal room for receiving guests. I sit in an armchair too low to the ground for comfort; he sits in a high-backed chair fit for a doge. A male assistant brings in coffee.
“Have some,” he says, dismissing the assistant with a wave of his hand. “Kopi luwak, from Sumatra. Rarest coffee in the world. Eaten by palm civets, then how say . . . crapped out.”
I thank the assistant, who seems startled at being addressed, then walks out with his eyes lowered. The coffee doesn’t have much of an aroma but leaves a strong taste, bitter and tangy. I tell Wayne it does indeed taste like cat shit.
“After all this,” he says, shaking his head. “They want to tear us down. Us, the other big families. You know how far this country has come?”
He doesn’t wait for an answer. “When I was growing up, our country’s role model was the Philippines. Can you imagine? If only we could live as well as the Phils. Free market, open democracy. You ever smell tear gas? Student demonstrations every day at university. I went to class with it in my face every day. Thanks to those crazy, no-good student protesters. I learned to wake up and love the smell of tear gas in the morning.
“All this progress today thanks to us chaebol,” he says. “And now, to-sa ku-peng. You know, use hunting dogs for hunting and then discard them like so much garbage when they can’t hunt anymore.”
Wayne explains what I already know in pieces. At the heart of the chaebol model is dynastic succession. Every group passes controlling power in patrilineal fashion, from father to son to his son, from jangnam to jangnam. It’s the Korean way.
“What about all the stuff they taught us in B-school,” I say. “Family dynasties are the enemy of meritocracy?”
He shrugs. Like many other scions, Wayne did not have sufficient direct ownership of the major group companies, which are publicly traded and have a diffuse shareholder base. And inheritance tax is prohibitively high. So they orchestrated the handover in a “creative” way: Ilsung Corp. issued exchangeable bonds at below-market prices, and, thanks to a loan from Ilsung Securities, Wayne and his dongseng, Kane, purchased the securities.
“They make us jump through hoops,” he says, “to retain what’s ours. So, yeah, we converted the exchangeables and, voilà!, we ended up with a controlling share of the flagships Electron and Life Insurance. Right back where we started.”
Bad governance and flouting securities regulations, but they could do it, because, it’s rumored, the group has regulators, politicians, and media in its back pocket. “Is it true? Those rumors about Ilsung’s illicit dealings with government?”
Wayne dismisses my question with a flick of his hand. He doesn’t bother denying his succession scheme or even the existence of a slush fund. “Not bribery. A ‘tax’—levied on us for running a business, which is mine by birthright.”
“A tax, huh?”
“It’s just the politics are a bit crazier this time, with a Communist president coming in. Damn politicians are playing to the public, vowing to bust up the evil, all-powerful chaebol.” They’re nipping at his heels, the Cerberus of politicians, creditors, and now prosecutors. Wayne needs cash, a heaping pile of it, to make the hounds go away. “Hence, the general prosecutor’s investigation into the chairman’s office—and me.” He shakes his head. “They’re questioning the legality of the Ilsung Corp. securities purchase.”
“What about the labor union?” I say. It comes out in a challenging tone. “They have a say in all this?”
Wayne sits back in the chair, looks at me. “Guess you saw outside,” he says, lighting a cigarette. “Chairman gives them jobs, and this is how they repay us. We give them raises every year, but it’s never enough. You want equality, I say go to North Korea. I’m sick and tired of their act.”
He lets out a long spiral of smoke. “We want to take care of them. Of course we do. It’s just, they’re . . . unreasonable. They belong to the crazy nationwide umbrella unions, and their leaders are Communists. Those guys behind the scenes, they don’t want better wages or benefits for our poor employees, they want to burn the whole system down.”
“Maybe they just want respect,” I say. “Some recognition that you’re all in it together.”
“You’ll never understand,” he says. “You see the guys on the roof? No? Two union guys, not our employees but reps from the national organization, they went up to the roof of our building. Climbed on to the parapet where the antenna is, armed with paint thinner. To protest working conditions in our factories.”
“Paint thinner?”
“Flammable thinner. Police get close, they threaten to pour the thinner on them and themselves and light them all on fire. To kingdom go. The last thing the police commissioner needs is a couple of dead protesters. So they do nothing. They’ve been up there for five weeks now. Right above us. Not coming down until I personally come up and get down on my knees.
“And that’s not worst of it. You know they’ve been camped out in front o
f my house in Itaewon for over a month now? They chant, ‘Death to Park!’ all day, all night long, they throw eggs at my car, burn effigies of me. At my home! My wife can’t even go outside. She lives in terror. They’re not laborers, they’re terrorists!”
“I didn’t know . . .” is all I manage to say. One man’s martyr is another man’s terrorist.
Wayne runs his fingers wearily through his hair. He’s aged in the last several weeks, white hair sprouting up at his temples.
One night back at HBS, while we were unwinding from case studies, Wayne told me his childhood dream had been to be an artist. He had always loved to draw and paint, as far back as he could remember. He took off a semester in college to go to the south of France to paint. Like van Gogh in Arles. Happiest time of my life, he said. It was freedom. No chairman expectations to live up to, no group responsibilities, nobody after him. Just the sun and landscapes to watercolor.
I wish I could run away from it all, he’d said. To an island somewhere . . . and just paint. Paint all day.
Then, sensing he’d created a heavy mood, anathema to him, he asked if I knew of that Patek Philippe ad slogan, “You never actually own a Patek—you merely look after it for the next generation.” “Well, c’est moi!” he said, cheerily. “Just taking care of the business for the next generation. That’s us chaebol. Ha ha ha.”
“You with me, right, pardner?” Wayne says now. A transparent allegiance check, which I’d resent but for his exigent circumstances.
“Yeah,” I say. I’m with him. “You have my word.” But does that mean going against the laborers?
“So, timetable. Need to accelerate. Getting bit more . . . time-sensitive.”
“We can try to parallel-path the factory site visits in Changwon and Pyongtaek. Field two teams simultaneously, cut the DD time in half.”
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