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Elliott Management Stymies a Hyundai Restructuring -- WSJ

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05/22/2018 | 08:48am CEST

A Hyundai affiliate sets aside plan that Elliott Management says hurts holders

By Eun-Young Jeong 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 22, 2018).

SEOUL -- South Korean auto-parts maker Hyundai Mobis Co. abruptly called off its planned restructuring, handing an early victory to U.S. activist hedge fund Elliott Management Corp., which had led the opposition to the deal.

Lim Young-deuk, chief executive officer of Hyundai Mobis, told shareholders in a letter Monday that the company would withdraw the proposed deal "in its current form" but would seek shareholders' "approval on an updated restructuring plan at a later date."

Hyundai Mobis had pitched the deal, under which it would sell a chunk of itself to shipping and logistics affiliate Hyundai Glovis Co., as "the best choice...to strengthen future competitiveness." But investors and analysts widely saw it as a scheme to strengthen the shareholding position of the heir apparent of Hyundai Motor Group, 47-year-old Chung Eui-sun.

Mr. Chung is vice chairman of Hyundai Motor Co., the crown jewel of Hyundai Motor Group.

Glass Lewis & Co. and Institutional Shareholder Services Inc., two influential proxy-advisory firms, formally declared their opposition to the merger earlier this month, saying it lacked a compelling business justification.

Hyundai first announced the plan in March, laying out a series of actions to untangle the conglomerate's structure -- in line with the Seoul government's plan to make South Korea's large family-run conglomerates more transparent.

The Hyundai Mobis-Hyundai Glovis transaction, which would require the approval of two-thirds of Hyundai Mobis shareholders at a meeting slated for May 29, would have been followed by share swaps that experts said would give Mr. Chung a stronger grip on Hyundai Motor, South Korea's largest auto maker.

In April, Elliott -- which in 2015 lost a public battle over the merger of two affiliates of Samsung, South Korea's largest conglomerate -- revealed that it owned 1.5% stakes in Hyundai Mobis, Hyundai Motor and affiliate Kia Motors Corp., all told more than $1 billion in common stock.

In a presentation earlier this month, Elliott said the merger would hurt Hyundai Mobis shareholders, and that the fund would push for higher shareholder returns and corporate transparency at the conglomerate.

Elliott, founded by hedge-fund manager Paul Singer, declined to comment Monday.

The market had already expected the deal to be rejected by shareholders, Steve Chung, deputy head of research at CLSA in Seoul, said Monday after Hyundai Mobis scrapped the vote. Many investors saw the deal as engineered for the benefit of the heir apparent, said Mr. Chung, who isn't related to Hyundai's Chung family.

Roughly 30% of Hyundai Mobis is already owned by the Chung family and other Hyundai affiliates. Foreign investors hold about 45%, according to Kwon Soon-woo, an analyst at SK Securities Co. The May 29 deal was seen as hinging largely on the support of the country's National Pension Service, which owns 9.8% of Hyundai Mobis and 10.6% of Hyundai Glovis.

Corporate governance experts expect Hyundai to come back with more substantive changes than a simple sweetening of the merger terms. A revised proposal will still likely seek to cut the conglomerate's circular shareholdings, said Jun Sung-in, an economics professor at Hongik University in Seoul.

"One way or another," said Mr. Jun, Hyundai "has to reshuffle its corporate structure."

Write to Eun-Young Jeong at [email protected]

Stocks mentioned in the article
ChangeLast1st jan.
HYUNDAI GLOVIS CO LTD --End-of-day quote.
HYUNDAI MOBIS CO., LTD. --End-of-day quote.
KIA MOTORS CORPORATION --End-of-day quote.
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08:48aElliott Management Stymies a Hyundai Restructuring -- WSJ
05/21Hyundai Car-Parts Affiliate Calls Off Deal Opposed by U.S. Hedge Fund
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Financials ( KRW)
Sales 2018 52 889 B
EBIT 2018 1 564 B
Net income 2018 1 824 B
Finance 2018 175 B
Yield 2018 2,93%
P/E ratio 2018 7,51
P/E ratio 2019 6,35
EV / Sales 2018 0,26x
EV / Sales 2019 0,23x
Capitalization 13 762 B
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 33
Average target price 37 537  KRW
Spread / Average Target 11%
EPS Revisions
Hyoung-Keun Lee Vice Chairman & Co-Chief Executive Officer
Han-Woo Park President, Co-Chief Executive Officer & Director
Chun-Soo Han Chief Financial Officer, Director & Executive VP
Ki-Tak Sung Executive Board Member & Head-Research
Eui-Sun Chung Director
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