Hon Hai Buys Into SK C&C to Secure Presence in East Asia

The Hon Hai Group announced on June 30 acquiring a 4.9% stake, or 2.45 million shares, in SK C&C for 380.9 billion won (US$376.8 million), becoming the second largest shareholder of the SK Group of South Korea's IT service subsidiary.

As Hon Hai's first partnership deal with a South Korean business group came after the former's talks to acquire Sharp Corp. stocks hit the rocks, industry executives were made to think that Hon Hai is determined to secure a firm foothold in East Asia to build global presence.

Before such deal, Hon Hai had invested in manufacturing operations in America, Brazil,  China, Indonesia, Japan, and the Czech Republic. Industry executives say these global investments are crucial to the group's business over the next five to 10 years.

Hon Hai Precision Industry Co., Ltd.'s stock price closed up NT$1.4, driven by the signing of the deal, to a two-year high of NT$100 (US$3.3).

Hon Hai has declined to comment on whether it will take seats in SK C&C's board of directors. The group's executives stress the deal will create  win-win partnership between the two companies as well as synergy to maximize mutual benefit and create new businesses.

Industry executives say that, with Samsung and LG each competing with Hon Hai in liquid crystal display (LCD) panel and consumer-electronics industries, SK is Hon Hai's ideal partner in South Korea for not creating conflict of interest and yet boasting broad scope.

SK Group is South Korea's No.3 business group with presence in energy, chemicals, petroleum, shipbuilding, construction, civil engineering, and telecommunication, semiconductor, and logistics industries.  Fortune Magazine ranked the group the 57th on its Fortune Global 500 survey last year partly based on its 113 offices worldwide employing 70,000-plus workers.

Industry executives feel that Hon Hai, a holder of Asia Pacific Telecom, will likely invite SK Telecom and SoftBank to subscribe Asia Pacific Telecom stock in an upcoming private placement to strengthen presence in 4G.

They say the Hon Hai-SK partnership signifies that Taiwan's industry is ditching the usual strategy of “fighting South Korean industry in alliance with American and Japanese industries.”

Other prominent Taiwanese electronics manufacturers including foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC) and design house Phison Electronics Corp. have also partnered with SK. The memory-chip maker SK Hynix Inc. is a TSMC partner in chip on wafer on substrate (CoWoS) testing. Also, the memory-chip maker has subscribed Phison stocks in a private placement to form alliance on flash memory development. (KL)