4.1. A deeper understanding of the value of targets
The essential starting point is a clear understanding of the value of the company to a given acquirer under his or her ownership since a successful merger integration program should be built on a strong understanding of the key reasons for the deal.
Table 17 STX’s M&A activities in shipbuilding industry
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
For 27 years, Mr. Kang Duk-su, a founder of STX, was an ordinary salaried worker at Ssangyong Heavy Industries Company in Shipbuilding industry. Thus the management has a deeper understanding of their targeted companies since the targets are almost related to shipbuilding industry. As a result, STX bought Daedong Shipbuilding, Sandan Energy, Pan Ocean Shipping and Norway's Aker Yards in order and rebadged STX Offshore &
Shipbuilding, STX Energy and STX Pan Ocean, and STX Europe; one of Europe's largest
66
shipbuilder specialized in cruise vessels.
4.2. Focus on future value of Targets: nurturing targets after M&A
Mr. Kang Duk-su, a Chairman of STX group, emphasizes “The key to successful mergers and acquisitions is to create synergy with your existing businesses. We are differentiated in that we
are not just good at acquiring companies but at boosting the acquired company's value.‖
Source: Annual report of STX, 2010
Figure 16 Total sales & assets and STX’s M&A activities
STX directed a major effort toward improving future value of targets as synergy effect.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year
67
achieved through economies of scale. So STX could enjoy taking advantage of economies of scale since the company adds value in this context by capitalizing on functional economies of scale to cut costs and improve target‘s value and assets.
After M&A, STX diversified their business from containers to LNG ships and worked hard to improve their financial structure as effective management and due to economic boom at the same time; its company could reach its sales of $25bn, compared with only $727m in 2001 as shown in Figure 16.
In addition, STX had created a very advanced value chain from shipbuilding to shipping in order to maximize a synergy effect so that its company acquired a Pan Ocean firm whose sales was bigger than those of STX in 2004 and then renamed it STX Pan Ocean. The STX Pan Ocean showed a dramatically growth since most of factors might be synergy effects between businesses, the increased demand of both iron ore & coal due to economic boom.
4.3. To buy Targets as well as human resources
A follow-up strategy after M&A of Mr. Kang, a Chairman of STX, is so-called ‗magnanimity.‘
For instance, CEOs of STX, STX Pan Ocean, and STX Energy were from external companies including targets such as Pan Ocean. Each business of STX group assigned the people who were responsible for same businesses for long while. Mr. Kang emphasizes ‘I bought talented
68
persons rather than companies’ as often as he acquired targets. Thus STX has been never
renewal of personnel in targets after M&A. Because of this principle, STX didn‘t face some problems such as employees ‗concerns over job losses and customers‘ and suppliers‘ worries about potential disruptions in service. In order to overcome a short history of STX, its company needs to unite its people from external targets and to enthusiasm for the teams responsible for integration as one which Mr. Kang knew well. The chairman of STX group has never expected massive layoffs for laborers and a reduction in managerial positions as a result of the mergers and acquisitions.
4.4. Initial Public Offering as a sound conservation strategy
Most of targets which STX acquired were unlisted firms. STX made a good purchase because the targets had already a high effective management and lower in debt. STX went to public with IPO which means an Initial Public Offering, also known as ―going public‖, is the most profitable and most high profile conservation strategy. An IPO in simple words is when a company issues shares (equity), to the public in order to raise funds. IPO‘s usually take place
when the firm would be at a peak of its productivity cycle (Clementi, 2002). Being a public company comes with certain benefits. The more immediate positive is the large amount of cash raised through an IPO, which can enable solid growth and redeem a capital invested.
69
4.5. Enter into New Segment through abroad
STX felt the limit on standard ship building with major competitors of Korean shipbuilders as the center, acquired Aker yard in order to build a new power source of growth. Acquiring Aker gives STX a strong footprint in the cruise ship and offshore service market. The cruise ship product (which is still dominated by EU countries) only accounts from 2% of production output but accounts for 20% of market value. Despite its significant advancements in shipbuilding technology, South Korea has had some difficulties in breaking into the cruise market as one of the ―High Value Ship‟ segment as it faces intense competition in the Standard Ship segment.
STX's acquisition of Aker has raised fears that it could transfer the expertise in cruise ships to its lower-cost Asian yards, leading to the loss of more European shipbuilding jobs. Cruise ships are one of Europe's last areas of competitive advantage in the industry. It will also help it to expand in Europe at a time when it faces increased competition from China and lags behind bigger rivals such as Hyundai Heavy Industries and Samsung Heavy Industries.
70