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VALUEVEST MANAGEMENT'S
MARK BAKAR AND JOHN BURBANK
(continued from preceding
page)
Burbank: I think that I've been pretty conservative every step of the way. For example, my valuation of Shinsegae's stake in Samsung Life is very low. Some think it may be worth two to three times the price I'm using.
OlD: Aside from brokers and newsletter editors?
Burbank: Yeah. I'm no insurance expert. But we've been told that George Soros actually offered Cheil Foods KW250,000 per share for its stake in Samsung Life.
And we think he was trying to buy it on the cheap. We know someone in the insurance business in the U.S. who tells us he went to Korea, met with Samsung Life's chairman and told him he'd be happy to pay KW650,000 per share - or more than 2-1/2 times what Soros offered.
Bakar: And he said, "We don't even want to talk about it at less than KW1 million per share."
OlD: Do either of those guys buy newsletters?
Burbank: It's not clear that they're being irrational. The big problem in valuing Samsung Life is that it's hard to ascertain the nature of the assets. But we know that it's the largest life insurer in Korea by far and, we believe, the largest in Asia ex-Japan. We know it has a market share of roughly 33%. And we know it has premiums of more than KW11 trillion - which even after the decline in the won is still over $7 billion. So it's just a massive company.
Also, we know who runs it. And its management has a reputation for being sharp. I understand they've made a point of sending their people to work at western companies - like Prudential - to understand how they do it. And Samsung has been very forward thinking generally - which is one reason why it's done so well over time.
OlD: Sounds impressive.
Burbank: But insurance companies play a game in Korea. They don't want to be regulated any more than they already are. And they figure the less earnings they report, the more likely it is the government will stay off their backs and the less they'll pay in taxes. So they all play a game of taking huge reserves and reporting very little in earnings.
And, therefore, the retained earning and book values wind up being very small. For example, as of March 1997, Samsung Life had total assets of roughly KW26.85 trillion - or more than KW1.4 million per share. In contrast, its book value was only about KW489 billion - or only about KW26,000 per share.
So what it's worth is anyone's guess. But through March, it had premiums of KW11.34 trillion - or about $7.4 billion. And my KW200,000 per share assumes a valuation for Samsung Life of roughly 33% of premiums.
OlD: And you say you think that's conservative.
Burbank: Absolutely. It's hard for us to imagine that it's not worth much more. A similar insurance company in the U.S. would probably sell for 1 times premiums or more, although Samsung Life's premiums are growing faster - from KW7.95 trillion in 1995 to KW10.33 trillion in 1996 and KW11.34 trillion in 1997. In part, of course, that's because Korea's been growing a lot faster - at least in normal times - than most insurers' markets.
OlD: Speaking of fantasies, it sounds like the
Page 8 of 14
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