Proxy advisory firms recommend 'no' vote on LG spinoff

Two global proxy advisors have recommended shareholders of LG Corp. vote against a plan to spin off company assets into a new entity.

The advice from Institutional Shareholder Service (ISS) and Glass Lewis threatens to shake up what was set to be a rubberstamp shareholder meeting and could put a stop to an initiative pushed by the founding family.

Under the plan, key LG Corp. assets are to be shifted into a new corporate structure. The proposal was to be approved at the meeting, which is scheduled for March 26.

Ownership stakes to be transferred are: 24.7 percent of LG International; 33.5 percent of LG Hausys; and 33.1 percent of Silicon Works; and indirect stakes in LG MMA, a subsidiary of LG Hausys, and Pantos Logistics, which is 51 percent owned by LG International.

The new company will be called LX Holdings.

Whitebox Advisors, a Minneapolis, Minnesota-based fund that owns around 1 percent of LG Corp., has objected to the restructuring on grounds that the transaction will shift assets to a related party at a discount and harm the interests of shareholders.

According to a release by Whitebox, the two proxy advisory services largely agree with its objections to the deal.

“Overall, considering the diverse operations of the spinoff entities and absent any potential synergies, the strategic rationale of combining these assets into a new listed company appears questionable,” ISS wrote. “The proposed spinoff has exacerbated concerns about the fair treatment of all shareholders.”

“We believe Whitebox presents the more compelling case to LG Corp. shareholders,” Glass Lewis wrote according to Whitebox.

“Both ISS and Glass Lewis echoed our views regarding LG’s concerning lack of focus on implementing a practical capital management plan and working to narrow the Company’s persistent valuation gap,” said Simon Waxley, head of equity at Whitebox, according to a statement.
Institutional investors, including pension funds and mutual funds, will often follow the advice of proxy advisory services. Both Vanguard, the Valley Forge, Pennsylvania-based discount brokerage, and New York’s BlackRock own more than 1 percent of the company, and BlackRock has become increasingly assertive in pushing for corporate governance reforms.

The passage of a special resolution, as would be required for a spinoff, requires two thirds of votes cast by attending shareholders and votes of one third of all outstanding shares.

The vote could be close. LG Corp. Chairman Koo Kwang-mo and related parties hold a combined 46 percent of LG Corp, while the National Pension Service owns 7.6 percent.

Independent shareholders may have enough votes to block the resolution, and the NPS could vote ‘no’ as well, as it has been becoming more active in recent years in order to protect the interests of Korean retirees. But independent shareholders may not agree with the proxy services, and some may not vote at all.

LX Holdings will be run by Koo Bon-joon who formerly served as vice chairman at LG Corp. and CEO at LG International.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]