Background of STX

STX Corporation is a South Korean holding company engaged in the provision of trading services. Headquartered in Gyeongsangnamdo, South Korea, the company operates its business through four divisions: Shipbuilding &Machinery, Shipping & Trading, Energy and Plant & Construction. Its shipbuilding machinery sector provides a complete vertical systemization system encompassing the production of shipbuilding equipment and material, blocks, engine parts and marine diesel engines, as well as the construction of ships. Its Shipping Trading business division provides shipping and energy materials, coal, oil, steel and others. Its plant & construction sector business provides shipyards, power plants (combined cycle plant, gas fired power generation plats) and environmental plats (desulfurization systems, water and wastewater treatment plants)

Its Energy business sector operates not only operating Korea largest combined heat and power (cogeneration) plant but also provides a total solution to energy needs, from energy resource development to transport, processing and sales.

6 Source: STX web site

Figure 1Affiliated companies of STX

STX was never born, once a mighty South Korean conglomerate before the Asian financial crisis forced the group to the edge of collapse. The investment fund Hannuri, which bought the Ssangyong Heavy unit in 2000 when its firm was under legal management, promoted Mr Kang Duk-su, then the company's chief financial officer, to chief executive. He was predetermined to revive the company because he could get free only when the company normalized. He already owed Ssangyong's creditors more than Won 40bn ($33m, pound(s) 21m, EUR26m) at that time as he personally guaranteed the debts to pay for wages and other company expenses.

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Table 1 The chronicle of STX

2010 October Established STX OSV

2009 July Established STX Windpower

2007 March Commenced construction of STX Dalian

Shipbuilding Complex

October Established STX Windpower STX Europe November Established STX Solar 2005 February Established STX Construction

2004 February Established STX Heavy Industries April Introduced holding company system

Established STX Engine

November Established STX Pan Ocean

2002 November Established STX Energy 2001 May Established STX Corporation (Changed the

company name of formerly Ssangyong Heavy Industries)

June Established STX Metal October Established STX Offsore and shipbuilding

Source: website of STX

For decades, Mr Kang was an ordinary salaried worker at Ssangyong Group. Although he never intended to buy the group's embattled engine making unit, the circumstances he found himself in persuaded him to do so. He had made a decision for a man nearing retirement to put up all his personal wealth to buy a troubled company since he was confident of its

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fundamentals in order to turn it around.

Table 2 Orderbook by shipyard in Korea, end of 1990 Domestic

Source: Data from Institute of Shipping Economics (1991:75). Tonnage refers to 1000 grt.

Many company workers bought shares in Ssangyong Heavy after he began to run the company and he managed to turn it round by working with clients and suppliers and by winning big orders from China and Japan. He became the company's single largest and controlling shareholder in 2001 after buying an 11 percent stake from the Hannuri fund for Won 2bn out of his own pocket. Then, he renamed the company STX. Since Mr. Kang took control of the company, STX's expansion has appeared to be unstoppable. It embarked on a

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series of domestic acquisitions to diversify into shipping and shipbuilding.

Table 3 M&A history of STX

Year Target Rename

2000 Ssangyong Heavy Industries STX Engine

2001 Daedong Shipbuilding STX Offshore & Shipbuilding

2002 Sandan Energy STX Energy

2004 Pan Ocean Shipping STX Pan Ocean 2007 Norway‘s Aker Yards STX Europe 2009 Harakosan Europe B.V STX Wind power

Within three years, it bought Daedong Shipbuilding, which is one of small-size shipbuilders in Korea as shown in Table 2, and Sandan Energy, Pan Ocean Shipping and renamed them STX Offshore & Shipbuilding, STX Energy and STX Pan Ocean as illustrated in Table 3.

Then, the group expanded its horizon abroad, making its first overseas acquisition in 2007, buying a 39.2 percent stake in Norway's Aker Yards, Europe's largest shipbuilder specialized in cruise vessels. It is now renamed STX Europe. The group also bought Harakosan Europe B.V, the Dutch wind generator maker, renamed it STX Wind power. But the acquisition of Aker Yards required long and tough negotiations. STX faced strong resistance from European workers and an antitrust investigation from the European Commission before it took full

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control of Aker Yards in 2008 - becoming the first Asian shipbuilder to construct a cruise ship for the international market

Source: Annual Report of STX, 2010

Figure 2 Total sales of STX

Such acquisitions as shown in Table 3 have helped him transform STX into the world's fourth-largest shipbuilder in the space of just 10 years. Now, the group has 21 units² with combined revenues of $25bn, compared with only $727m in 2001 as shown in Figure 2 and Table 4. It has 18 shipyards in eight countries with more than 90 percent of its sales generated abroad and nearly 60 per cent of the group's 57,000 workers from outside of the country.

2 Subsidiary's current state of affairs from the Citizens Coalition of Economic Justice, 2011 1.36

7.00

16.27

25.64

22.36

4.45 5.91 0.73 1.18

24.09

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year

$Billion---

$Billion---11

Table 4 M&A activity and sales of STX Year Sales

( $ million) Target Deal Value

( $ million)

2001 $727 Daedong Shipbuilding $91

2002 $1,182

2003 $1,364 Sandan Energy $45

2004 $4,455 Pan Ocean Shipping $391

2005 $5,909 2006 $7,000

2007 $16,273 Norway's Aker Yards $667

2008 $25,636

2009 $22,364 Harakosan Europe B.V $22

2010 $24,091

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