Background
A South Korean telecommunications company wanted to bring their globally active ‘mobile phone masts’ division to the New York Stock Exchange in the current year. The stockbrokers on Wall Street already had the champagne on ice because, after a long dry spell due to the financial crisis, a successful IPO of several billion dollars was expected.
However, driven by market and industry analysts, the South Koreans were still planning some strategic acquisitions in various high-risk emerging markets before the IPO. This was intended to strengthen and secure the company’s market position and also drive a higher company valuation.
Task
The South Koreans commissioned REMARKABLE Compliance to carry out a particularly thorough, but discreet and independent review of potential target companies with regard to reputational and compliance risks. These investigations were intended to ensure that the planned IPO of the company's division was not put at risk by any potential scandals in subsidiary businesses.
Findings
The investigations revealed significant violations of international compliance guidelines for two out of four target companies. One target company confirmed massive violations of environmental policies such as illegal logging in particularly sensitive, protected natural environments. Officially, the land clearance served to create space for mobile phone masts. On closer analysis, however, it was established that, under this political pretext, new pastures and arable areas were also being developed. This custom was so systematically widespread in the country that massive state corruption had also to be assumed.
Research into the second target company indicated that land for mobile phone masts was procured with the help of a local drug cartel. Under threat, and by use of force, decoy companies owned by the cartel appropriated the properties previously identified by the target company and thus become contractual partners themselves. Where this was not possible, landowners were forced to sign contracts with the target company. A company owned by the drug cartel even charged consultant fees for this.
Results
In the two problematic markets identified, no strategic acquisitions were made, and the IPO was very successful. The two cases described above were exposed in the local press much later. They would certainly have received much more attention leading to a negative impact if a multinational organisation had been involved.