Fending off Elliott’s attack

U.S. activist hedge fund Elliott Management on Monday laid out its demands for Hyundai Motor Group, Korea’s second largest conglomerate. It wants the motor group’s flagship carmaker Hyundai Motor to merge with its auto parts affiliate Hyundai Mobis, cancel all its treasury shares, increase cash dividend payouts up to 40 to 50 percent against net profit and recruit outside directors with multinational credentials. Hyundai Group struck down the recommendation as it has its own reorganization outline in place.

Hyundai Motor Group’s own scheme proposes splitting up Hyundai Mobis into two separate entities. It plans to have Mobis’ profitable after-sales business be taken over by the logistics company Hyundai Glovis, while the group’s Chairman Chung Mong-koo and Vice Chairman Chung Eui-sun will oversee see Mobis’ vehicle parts and investment as major stakeholders in a new holding company.

Elliott Management, which previously said it owns shares worth $1 billion in Hyundai Motor, Kia Motors and Hyundai Mobis, is unhappy about Hyundai Mobis handing over its lucrative after-sales business to Hyundai Glovis, which Elliot does not have a stake in. The fund will likely make its voice heard at the Hyundai Mobis shareholders’ meeting next month, when shareholders will vote on the merger plan.
Hyundai Motor Group claims it cannot comply with the U.S. fund’s recommendations, as it would not be able to seek mergers and acquisitions freely under the antitrust law on holding companies. Although it acts on behalf of shareholders, Elliot Management is a vulture investor that hunts for bargains and high-profit assets. From its track record, its demands of Hyundai Motor could be aimed at making profits after upping the company’s stock prices.

To fend off attacks from predatory funds, companies must willingly do more to raise their value to shareholders.

The government is pursuing revisions to the commerce law to curtail excesses of majority shareholders. But management rights of companies also need protection. Companies must not waste time and resources on fighting off hedge funds. Korea, too, must consider the introduction of a dual-class stock system or a “poison pill” shareholder rights plan to defend management from hostile takeover attempts.

JoongAng Ilbo, April 25, Page 30