Hyundai Motor to retire 3 percent of its shares

Hyundai Motor will retire about 3 percent of its stocks in a move that may have been prompted by a hedge fund’s aggressive push for the company to change its corporate governance structure.

The announcements come after Elliott Advisors, the Hong Kong unit of the U.S.-based activist hedge fund Elliott Management, earlier this week pushed Hyundai Motor Group to enhance shareholder benefits and reform its corporate governance structure.

Elliott Advisors holds common stocks worth $1 billion in Hyundai Motor Group’s three key business units: Hyundai Motor, Kia Motors and Hyundai Mobis.

Hyundai plans to move some of Hyundai Mobis’ auto parts businesses and its after-sales service to Hyundai Glovis and make Mobis the group’s de facto holding company.

Elliott opposed the plan and said that the company should form a holding company by merging Hyundai Motor and Hyundai Mobis, which it said would be better for shareholders. The automaker, however, is pursuing its own plan.

Stock cancellations are a way of increasing shareholder returns, the company said.

Hyundai plans to retire 6.61 million common stocks and 1.93 million preferred stocks. It will be the first time in 14 years that the company retires its own stocks.

Hyundai will retire 4.41 million common stocks and 1.28 million preferred stocks that it already holds. It will retire another 2.2 million common stocks and 650,000 preferred stocks after buying them back from the stock market. The process is expected to cost the company roughly 960 billion won ($893.6 million), though that may change if share prices fluctuate. Hyundai expects to retire all the stocks by July 27, according to the filings.

The automaker said that its move is part of a plan to improve shareholder value that began in 2014. However, industry insiders speculate that Hyundai is trying to ease market concerns over its restructuring process that were spurred by Elliott’s proposal. Still, Elliott is still opposed to Hyundai’s current governance reform plans.

Kim Sang-jo, the chairman of the Fair Trade Commission (FTC), called the hedge fund’s request “unfair.” The head of Korea’s antitrust agency said Thursday that Elliott’s plan will cause the conglomerate to violate a local law on the separation of financial and industrial capital.

In Korea, non-financial holding companies cannot have subsidiaries that are finance or insurance companies. Should Hyundai Motor and Hyundai Mobis merge and take a holding company structure, it would inevitably have the automakers’ financial arms - Hyundai Card and Hyundai Capital - under it.

Elliott, however, immediately rebutted Kim’s claims in a statement on Friday.

“Elliott notes the FTC Chairman’s remarks about a potential compliance issue that may arise from keeping financial subsidiaries under the newly formed holding company,” the activist fund said. “That is why Elliott made clear in its April 23 press release that those issues should be resolved within the two-year grace period as required under the Monopoly Regulation and Fair Trade Act.”

Elliott said it “looks forward to a constructive dialogue with the Hyundai Motor Group management, the FTC and other stakeholders” to identify the most efficient governance structure for the group’s shareholders.

On the same day, the automaker’s logistics affiliate Hyundai Glovis unveiled a long-term strategy to more than double its earnings by 2025.

Hyundai Glovis said it plans to earn over 40 trillion won by 2025. This target is about 2.4 times more than last year’s revenue of 16.36 trillion won.

The conglomerate’s logistics arm said it will take in 23.6 trillion won from its integrated logistics services, which includes its retail and shipping business, and another 16.4 trillion won from the auto parts and after-sales service business it will receive from Hyundai Mobis.

The company also said it will enter the car-sharing business with an hourly car rental service, which will further increase revenues, and actively pursue merger and acquisition deals.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]