Elliott Management pushes for reorganization of Hyundai corporate governance structure

The hedge fund holds more than $1 billion in shares with Hyundai Motors and its affiliates

Elliott Management, the American hedge fund that opposed the merger of Samsung C&T and Cheil Industries in 2015, is now pushing for a reorganization of corporate governance of the Hyundai Motor Group. The group has demanded specific improvements to the governance structure, explaining that it has secured more than 1 trillion won (US$950 million) in shares in three affiliates of the Hyundai Motor Group. Market observers believe that Elliott is leading the charge to maximize stockholders’ interests and are watching to see whether this will lead to further action such as the purchase of more shares or to litigation related to the merger ratio.

Elliott Advisors Hong Kong, an investment consulting firm for a fund affiliated with Elliott, announced on Apr. 4 that it holds more than US$1 billion in normal shares at the Hyundai Motor Company, Kia Motors and Hyundai Mobis. While noting that the Hyundai Motor Group’s plan for reorganizing its shareholding structure was encouraging, the company said that additional measures would probably be necessary for interested parties, including the company and shareholders.

On Mar. 28, the Hyundai Motor Group announced a business and governance restructuring plan by which Hyundai Mobis would spin off business divisions and partially merge with Hyundai Glovis. The crux of the plan is to eliminate the circular shareholding structure and to simplify governance. Elliott responded by saying that, as a major stockholder in the Hyundai Motor Group, it was pleased to see the group taking its first steps toward an improved and sustainable corporate structure. Elliott added that it was asking group management to share a more detailed roadmap for how it would improve corporate management at each affiliate, optimize capital management and achieve returns for stockholders.

The Hyundai Motors headquarters in the Yangjae neighborhood of Seoul (Hankyoreh Archive)

Taken at face value, Elliott’s announcement reflects a different attitude from its attitude about the merger between Samsung C&T and Cheil Industries in 2015. At that time, the hedge fund challenged Samsung by alleging that Samsung C&T had been undervalued and that the deal was not in the interests of Samsung C&T stockholders. In contrast, Elliott has given a positive assessment to the Hyundai Motor Group’s restructuring plan. But it also expressed its hope for a chance to propose additional measures for the plan, which can be taken as hinting that it could take action if its demands as a major stockholder are not met.

As of the close of trading on Apr. 3, Hyundai Motor Company, Kia Motors and Hyundai Mobis had a market capitalization of 73.5 trillion won (US$69.2 billion). If Elliott has a 1 trillion won share, that would be about a 1.36% share in each of the three companies. This contrasts with the 7% share it held in Samsung C&T at the time of the merger. The view in the financial industry is that if Elliott takes issue with the governance restructuring process at the Hyundai Motor Group, it will push for increasing profits for stockholders, through more dividends.

“Since [Elliott] fundamentally supports restructuring at the Hyundai Motor Group, it will probably try to ensure that this works in its favor, perhaps by calling for stockholder-friendly policies,” said Lee Jong-u, head of the research center at IBK Securities.

It is conceivable that Elliott will take issue with the merger ratio for Hyundai Mobis and Hyundai Glovis or with the appropriateness of the price of stock in Hyundai Mobis currently held by Kia Motors that will be purchased by Group Chairman Chung Mong-koo. Some hold that the plan to spin off Hyundai Mobis’s after-service division – which is the company’s crown jewel – and merge it with Hyundai Glovis will work in the favor of Chung and his son, who will have to sell shares of Hyundai Glovis and then buy shares in Hyundai Mobis. The split and merger ratio for Hyundai Mobis and Hyundai Glovis was set at 0.61 to 1, in light of their net worth.

If foreign investors join forces with Elliott, the Hyundai Motor Group could run into trouble in the first stage of its governance reform. At present, non-Korean entities reportedly hold 47% of shares in Hyundai Mobis, compared to 30% that are held by stockholders aligned with Chung and his family.

“In the future, we will continue to strive to improve our corporate values and to increase profits for investors, and we are planning to faithfully communicate with our domestic and foreign stockholders,” Hyundai Motor Group announced shortly after Elliott’s statement.

By Hong Dae-sun and Choi Ha-yan, staff reporters

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