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Hyundai founder Chung Ju Yung struggled to the end to save his family and their empire. Every working day, the 85-year-old tycoon called his six sons to breakfast at his house. One ran the auto companies, another handled the electronics and shipping, a third the world's biggest shipyard. Together, the Chungs resisted calls to reform their conglomerate--South Korea's largest. As other Korean dynasties succumbed to the Asian financial crisis, the Chungs bought up pieces of stricken rivals like Kia and LG, even making risky new moves into North Korea. But by last week, with Hyundai debts topping $60 billion and creditors joining government reformers in pressing for change, the game was up. Attacks on the group were tearing apart the Chung family itself, as the eldest surviving son rebelled against the patriarch's plan to restructure Hyundai.
This was bound to be ugly. The Asian crisis has exposed deep rifts between the postwar generation that founded South Korea's family-run business empires, and their sons. Earlier this year Chung announced that his fifth son would succeed him as chairman--infuriating his eldest surviving son, Chung Mong Koo, head of Hyundai's auto divisions. Then, in May, pressure from creditors forced the patriarch to announce a stunning retreat. He and his feuding sons would resign from management and accelerate the breakup of the Hyundai Group into five subgroups (autos, heavy industries, construction, electronics and financial services) and resign from senior management. The chosen heir agreed to the plan. Chung Mong Koo did not. He asked the government last week to free his Hyundai Motor, Kia Motors and six other auto-related companies from the group, leaving him in control.
The father had seen this revolt coming. In fact, he had been buying stock in Hyundai Motor in an effort to head off his son's bid for the company, but creditors forced him to resell the newly purchased shares last Tuesday. Chung unloaded the stocks in a blitz--too fast for his son to snap them up. Nonetheless, the father's influence was much reduced, and the son seemed quite happy with the split. "We will be better off without the umbrella of the group," said Harry Choi, the auto group's managing director. "Now we will grow into a global auto specialist."
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The implications are bigger than Hyundai. During their half-century in business the Chung family had known only aggressive expansion. As the largest of five family conglomerates that drove the postwar economic boom in South Korea, Hyundai plastered its name on everything from semiconductors to cars and massive apartment blocks. Kids went to Hyundai schools, and parents shopped in Hyundai stores. The conglomerate came to produce 15 percent of South Korea's GDP. "Hyundai in a way represents the whole Korean economy," said Henry Morris at Seoul-based Industrial Research & Consulting. "Its future can determine the economic future as well."
Hyundai's fortunes may also affect the emerging thaw in relations between North and South Korea. Born north of the demilitarized zone that divides the Koreas, the elder Chung has invested heavily in projects designed to promote "brotherly relations." His new tourist ferry to the North is not expected to turn a profit for years. He has sent several large herds of cows as gifts to help relieve widespread hunger in North Korea. Just last week Hyundai signed an agreement with Pyongyang to develop a 130-square-kilometer industrial free-trade zone just north of the DMZ. North Korean leader Kim Jong Il described the project as a "favor" granted to Chung for the "sincerity" he has shown Pyongyang.
Grand gestures, all. But to investors, Chung's northern ambitions were a sign that Hyundai was still under the personal control of a founder who can spend Hyundai money as his own, and at a time when Hyundai was facing a severe liquidity crisis. Unpaid bills from massive projects in exotic markets like Iraq had put Hyundai's construction arm deep in the red by early August. Many creditors clearly won't be satisfied until the Chungs resign from management.
The Chungs are still a powerful presence in Seoul. The senior Chung made nearly $200 million last week on the sale of Hyundai auto shares. That money will go to prop up the construction division. Hyundai's semiconductor business and its shipyard are booming thanks to foreign demand. Even Chung's sentimental investments in the North could have a huge payoff someday. After the breakup, Hyundai's parts are likely to emerge stronger. The same may not be true for the Chung family.
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