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Business trends

Asia's family-run business empires forge ahead in turbulent times

Thailand's CP pushes on with $11bn Tesco acquisition despite market turmoil

CP Group Senior Chairman Dhanin Chearavanont in 2019. The family-dominated firm was able to proceed with the buyout of Tesco operations in Southeast Asia despite an unsettled market. (Photo by Kosaku Mimura)

BANGKOK -- The timing was peculiar when the $10.57 billion takeover of Tesco's businesses in Thailand and Malaysia was announced by Thai conglomerate Charoen Pokphand in early March -- the world's stock markets were in turmoil as the coronavirus pandemic extended its reach.

The conglomerate and its publicly traded unit CP All Public could have easily hit pause to avoid unsettling shareholders during an already chaotic time. But it forged on. The massive deal, announced on March 9 as investors and companies in developed economies fled from risk, sent a strong message on the might of Southeast Asia's business empires.

CP Group's bold move shows Asia's conglomerates are melding their traditional, family-oriented management style with more Western capitalist principles, producing a unique corporate culture that could be key to their survival.

"Asian companies operate under a different logic from Western companies when it comes to the stock market," said a merger and acquisition expert, echoing a popular sentiment among peers in Asia.

CP Group initially let go of Tesco's Southeast Asian businesses, which Senior Chairman Dhanin Chearavanont often called "my child," in 1997 to stay afloat amid the Asian currency crisis. The structure of the latest deal itself comes straight out of the American or European M&A handbook, but the lack of concern over shareholders does not.

Southeast Asia's other conglomerates are adopting certain elements of Western corporate culture. Indonesia's Salim Group, for example, has begun restructuring its infrastructure business with the help of an outside investment fund.

Metro Pacific Investments, which controls the group's operations in the Philippines, sold unit Metro Pacific Hospital for about 35 billion pesos ($688 million at current rates) to a consortium led by private equity firm KKR in December. The sale allowed MPI to focus its resources on core operations, like utilities and tollways.

Choosing and concentrating only on the strongest businesses is a common tactic among U.S. and European companies. Still, MPI kept a roughly 20% stake in the hospital unit -- an unusual move by Western standards.

The consortium welcomed the idea. "We needed the seller to keep an eye on the business so we could understand customs and relationships that are unique to Asia," said a source at one fund involved in the deal.

South Korea, which attracted Western investors before Southeast Asia, is also known for family-owned conglomerates that dominate its business sector. Activist investor Elliott Management in January unloaded its entire stake in the Hyundai Motor Group after criticizing its lack of transparency for years. "Elliott could exit the South Korean market altogether," said a source at a Singaporean activist investor.

But the waning tide of activism in South Korea does not mean its business sector has returned to its old ways.

South Korean conglomerates, or chaebols, have a long history of complex cross-shareholdings between its group companies. Many are working to untangle the web in response to Elliott Management and other Western shareholders, and the number of these cross-shareholdings have dropped to 10 in 2018 from about 450 in 2015. While the groups remain in the hands of their founding families, they now receive much less criticism for their lack of transparency.

The trend is often attributed to the new crop of business leaders across Asia. Many of the original founders have handed off the reins to their children and grandchildren. Third- and fourth-generation leaders in particular tend to have MBAs from the U.S. and extensive connections to financial experts on Wall Street.

"We're seeing more leaders who are able to discuss management strategies from a similar perspective," said a source at U.S. investment fund, explaining why more Asian companies are making acquisitions and working with external funds.

"I want to cultivate talent who can see ahead of their time like Jack Welch," CP Group's Dhanin had once said at a Nikkei event, referring to the former General Electric chairman.

But Asian conglomerates understand the strengths that come with family-based management, said one Southeast Asia head at a U.S. fund. Other Asian priorities like valuing employees and working with the rest of society is also timely, given the rise of environmental, social and governance-focused investing. The unique blend of Asian and Western principles could provide hints for companies even outside the region, as businesses worldwide reconsider whether to prioritize their shareholders above all else.

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