U.S. fund Elliott warns of proxy vote war against Hyundai Motor

Lim Chang-won Reporter Posted : 2018-05-11 14:55 Updated : 2018-05-11 15:32
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[Courtesy of Hyundai Motor]

SEOUL -- U.S. activist hedge fund Elliott Management warned of a proxy vote war Friday against a scheme by South Korea's Hyundai auto group to streamline its complicated governance structure, calling for support from other shareholders.

The Hyundai Motor Group (HMG) will split the module manufacturing and after-sales parts business of its parts-making unit Hyundai Mobis to combine it with Hyundai Glovis, a logistics unit. The plan will be put on the table at a meeting of Hyundai Mobis shareholders on May 29.

Elliott, which holds more than 1.5 percent of the common stock in Hyundai Mobis, Hyundai Motor and its affiliate Kia Motors, called for a complete merger between Hyundai Motor and Hyundai Mobis to create a holding company. Group owner Chung Mong-koo has been hesitant to introduce a holding company.

In a statement released on its website, the fund vowed to vote against Hyundai's restructuring plan and urged other shareholders to oppose it. "Elliott urges shareholders to vote against the HMG Restructuring Plan as a first step in reversing the trend of significant underperformance and poor governance across the Group."

The fund argued that Hyundai's restructuring scheme is based on "flawed assumptions" and failed to provide a sound business rationale. Elliott urged Hyundai to achieve a meaningful simplification of its corporate structure, address significant valuation discounts, optimize balance sheets, and improve shareholder returns or corporate governance.

In its latest market-friendly move, Hyundai Motor has canceled 960 billion won (897 million US dollars) worth of stocks and Hyundai Mobis has promised to write down shares worth about 600 billion won in the next three years.

Hyundai's "token measures" on share buybacks and cancellation of some existing treasury shares are positive, but more "significant" measures are needed to address long unresolved issues that have led to significant valuation discounts and underperformance at Hyundai Mobis, Hyundai Motor and Kia, the fund said.

Hyundai Motor president Chung Jin-hang spurned the fund's campaign, saying his company would act under its timetable without being swayed by Elliott's demands. "It is just one shareholder who gives an opinion," he told reporters at a business meeting in Seoul. "We will not be swayed by Elliott's recommendation."

In 2015, the fund launched a proxy vote war to prevent the merger of two Samsung units, insisting it is aimed at expediting the transfer of group ownership to Samsung Electronics Vice Chairman Jay Y. Lee, the only son of the group's ailing patriarch Lee Kun-hee.

Samsung narrowly won the battle to complete the merger, helped by support from the National Pension Service. Elliott now seeks more than 670 million US dollars in compensation for losses caused by alleged unlawful government intervention in the 2015 merger. The fund wants a settlement with the Seoul government over damages incurred from its investment in Samsung before it goes to the Washington-based International Centre for Settlement of Investment Disputes.