KT&G buy draws Lichtenstein’s ire

Warren Lichtenstein, Kwak Young-kyoon

Steel Partners, a U.S. private hedge fund led by Warren Lichtenstein, is on the move again in the Korean market. Lichtenstein, who has kept a low profile since his debut as a director of KT&G Corp. last year, expressed strong opposition to the firm’s recent purchase of stock in Shinhan Financial Group.
Meanwhile, the shares of Sempio Foods Company shot up yesterday amid rumors that Steel Partners has its eye on the Korean sauce maker.
KT&G, Korea’s only tobacco manufacturer, stunned the market late last week when it announced it purchased 3.5 million shares, or a 0.9 percent stake, in Shinhan Financial Group, Korea’s second-largest financial firm by assets. KT&G said in a regulatory filing that the purchase, worth 205.5 billion won ($221.9 million) and the firm’s first in a financial company, was part of a portfolio expansion.
“The stock purchase was part of our plan to secure financing sources and other loan services more easily when we expand our biotech and other new businesses in the future,” said Kim Tae-hoon, KT&G spokesman.
But the move drew bile from Lichtenstein, who became the company’s first and only non-Korean director in April last year after a fierce proxy battle. Lichtenstein missed the board meeting on June 20 to approve the purchase and thus did not vote. Instead he sent an e-mail to KT&G CEO Kwak Young-kyoon to express his opposition, Kim said.
Meanwhile, Lee Jung-in, analyst at Prudential Investment & Securities, was suspicious about KT&G’s motive for the investment, saying the firm, with rich cash reserves and stellar performance for the past several years, will have many suitors lined up as soon as it starts shopping for loans.
“KT&G had no reason to buy the shares at this point, while Shinhan was the one desperate to sell the shares,” she said.
Shinhan, which acquired Chohung Bank in June 2004, is required by law to shed 4.3 million shares that previously belonged to Chohung but later became Shinhan shares. The deadline to drop the shares was June 21.
“But KT&G is no sucker given its past smart business strategies and performance, so I suspect there may be some behind-the-scenes arrangement from Shinhan to give favors to KT&G in the future, in exchange for the stock purchase,” Lee said.
Meanwhile, Seoul bourses buzzed with rumors Steel Partners is seeking a 29 percent stake in Sempio, currently held by a private equity fund at Woori Investment & Securities Co. The share price of Sempio jumped 14.7 percent yesterday. But Steel Partners denied the report, saying the firm “has not entered into formal discussion with any party related to the acquisition of shares of Sempio.”

By Jung Ha-won Staff Writer [hawon@joongang.co.kr]