Solving the Elliott issueSUH KYOUNG-HO
*The author is an editorial writer of the JoongAng Ilbo.
“The firm culture emphasizes thoroughness, hard work, creativity and tenacity,” says Elliott Management Corporation on its website. The American hedge fund has declared war on the Korean government and Hyundai Motor Group. It sounds like a subtle threat from a vulture fund unwilling to give up the prey it has set its eye on. Paul Singer, a graduate of Harvard Law School, established the company in 1977 and named it after his middle name. Elliott Management currently manages $34 billion.
Elliott Management turns a profit by investing in government bonds. In 1996, it bought $11.4 million worth of Peruvian government bonds and raked in $56 million. To get the money back, the jet plane of former Peruvian President Alberto Fujimori was seized as he attempted to flee the country after being accused of human rights infringement and corruption.
It also invested in Congo’s sovereign bonds and collected the money from what the Congolese government received from the international community as aid. Elliott won a 15-year-long battle against Argentina. In 2001, it invested about $100 million in Argentina on the verge of default, and in 2016, it got $2.4 billion back. It brought the case to a U.S. court and seized Argentine ships.
Hyundai Motor is under Elliott’s attack. Vice Chairman Chung Eui-sun said in an interview that the company would not be shaken. His strategy is to emphasize that Elliott’s pursuit of short-term gains undermines the value for shareholders in the long run. In a contributed opinion piece last year, Singer wrote, “Far too often companies hide behind ‘long-term’ as a way to justify prolonged underperformance,” and “Rather than ‘short-term vs. long-term, how about ‘good ideas vs. bad ideas’?” A fierce battle is expected.
Last year, The Economist published an article titled “A boss’s guide to fending off an activist attack.” First, know the enemy. They are often arrogant and rash. When you take away all the packaging, they often make obvious demands like share repurchases. Second, prepare for them to attack. Relationships with other shareholders need to be strengthened in advance. Third, smother them with sincerity. Apple CEO Tim Cook endured dinners with hot-tempered investors like Carl Icahn. Last, make concessions if you have to, but don’t let them join the board. It will only lead to endless fights.
This is the way to deal with Elliott, but one important thing is missing. Don’t become the dead animal that a vulture likes to scavenge.
JoongAng Ilbo, May 15, Page 31