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Elliott demands big carmaker dividend

Activist fund wants a massive payout from Hyundai Motor Group
Mar 02,2019
Elliott Management is demanding a massive dividend, one that’s a multiple of net profit, from Hyundai Motor.

In an open letter to shareholders of the Korean automaker, the U.S. activist hedge fund asked them to support its position during the Mar. 22 shareholder meeting.

The dividend being requested is 21,967 won ($19.50) per common share. If the resolution is approved, the total payout would be about 3.5 times the net earnings and about 17 percent of the current share price.

The dividend demanded by Elliott includes 4.5 trillion won worth of common shares as well as preferred shares. Its total value would be around 5.8 trillion won. This is 3.5 times the 1.65 trillion won in net profit the Korean automaker reported for 2018.

Elliott argues that the group has sufficient capital to pay higher dividends, adding that the company’s net cash balance last year is estimated at 14.3 trillion won, which is 8 to 10 trillion won more than the balances held by competitors.

It argues that the automaker’s affiliates have been mismanaging funds and investing in “questionable” projects. Management has proposed 45 trillion won in R&D spending, but it has not provided estimates on returns from those investments. Elliott said that Hyundai Motor has low investment returns.

Hyundai Motor in addition to its massive investment plan also announced its intention to raise its return on equity (ROE) to 9 percent.
The hedge fund said it is also planning to request reform of the Hyundai Motor board.

This includes the establishment of compensation and governance committees, the nomination of three independent director candidates and independent shareholder nominees for the company’s audit committee.

“As HMC [Hyundai Motor Company] shareholders, your support for these resolutions is vital to our shared goal of improving the governance and performance of the company that we all collectively own,” the hedge fund investor said in the letter. “We are therefore asking today for all shareholders to support these landmark resolutions, which are designed to both transform governance and right-size the company’s overcapitalized balance sheet.”

It added that the Korean automaker has fallen short in serving its shareholders “due to its retention of substantial excess capital” and a lack of independence and accountability.

“HMC has refused to take even the kinds of small but incrementally positive steps forward taken by Mobis on capital return and governance,” Elliott claimed.

The U.S. hedge fund has is also demanding Hyundai Motor increase the number of people on its board from the current nine — including five outside directors — to 11.

This move is being suggested in part to counter the argument that Elliott is demanding too much for an investor with only a 3 percent stake in the Korean automaker. It wants a third of the board seats.

Elliott on Thursday made a similar request, including the call for a higher dividend payout, to Hyundai Mobis, the component development affiliate of Hyundai Motor. It demanded a 26,399 won per share dividend from Hyundai Mobis, totaling 2.5 trillion won. That exceeds the company’s operating profit of 2 trillion won. Elliott is said to have a 2.6 percent stake in Hyundai Mobis.
The demands come as Chung Eui-sun, the automotive group’s heir apparent, was named as the CEO of both Hyundai Motor and Hyundai Mobis this week.

Hyundai Motor Group has been attempting to change its structure from one of cross shareholdings among its affiliates to a more simple structure whereby Hyundai Mobis acts as the ultimate holding company.
This plan was proposed last year, but Elliott rejected it.


BY MOON HEE-CHUL, LEE HO-JEONG [lee.hojeong@joongang.co.kr]