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[News in focus] Elliott stake surprises investors

But FSC Chair Choi says ‘there is no reason to react sensitively’
Apr 06,2018
Elliott Advisors announced Wednesday that it has a stake in Hyundai Motor, Kia Motors and Hyundai Mobis worth more than $1 billion, stoking fears that the U.S. activist hedge fund, which aggressively interrupted a merger of Samsung affiliates in 2015, is looking to disrupt the group's restructuring.

But industry experts are less concerned, cautioning investors not to make hasty conclusions that Elliott will intervene in Hyundai Motor’s upcoming corporate governance restructure like it did with Samsung.

“There is no need to react sensitively to the latest movement by Elliott,” said Choi Jong-ku, head of the Financial Services Commission, to reporters on Thursday.

“I think it is a little different this time. … As learned from Samsung and Elliott’s case in the past, [Hyundai Motor] needs to respond accordingly to Elliott’s investment strategy,” Choi added.

In 2015, the U.S-based hedge fund raised a red flag over Samsung’s plan to merge Samsung C&T and Cheil Industries, claiming the merger ratio is unfavorable to Samsung C&T’s shareholders.

Elliott Management, which originally had a 4.95 percent of Samsung C&T shares, purchased more shares and raised the ratio to 7.12 percent to exercise its right as main shareholder to deliberately block the restructuring scheme set by the IT behemoth.

“Elliott rejected the merger of Samsung C&T and Cheil Industries in the past, but this time they said they ‘welcome’ the spinoff and merger of Hyundai Mobis and Hyundai Glovis,” said Lim Eun-young, an analyst at Samsung Securities. “It seems Elliott thinks positively of Hyundai Motor Group’s latest proposed plan on corporate restructuring,” Lim added.

How Hyundai Motor reacts to Elliott’s announcement will play a significant role in their future tug-of-war.

“Samsung rolled out a hard-line policy with Elliott, even depicting the investment fund as a vulture in an online cartoon,” an industry source said. “The IT giant also actively informed people not to be swayed by the hedge fund’s words and said the merger should be done for the sake of promoting the national interest,” the source added.

Hyundai Motor has resorted to cooperating with Elliott at the moment. Following Elliott’s announcement, Hyundai Motor said it will “communicate actively with the shareholders.”

“We are going to inform shareholders both from home and abroad about our intentions behind the corporate governance reform including Elliott,” a Hyundai Motor official said.

In fact, Hyundai Motor held a conference call on March 28 when it first announced the proposed plan of spinning off Hyundai Mobis’ module and after-service business and merging them into Hyundai Glovis.

Starting on March 29, Hyundai Motor has been holding non-deal road shows (NDRs) - discussions with current and future investors without selling shares - in Korea, followed by the United States, Europe and other parts of Asia.

“I believe that Hyundai Motor will have a chance to talk with Elliott through overseas NDRs,” the source said.

Hyundai Motor shares closed at 154,000 won on Thursday, down 1.6 percent from the previous day. Hyundai Mobis shares closed at 262,500 won ($246) per share Thursday, down 7.6 percent from the previous day.

“Elliott requested detailed roadmaps to improve corporate governance, balance sheets and capital returns, which are reasonable demands that can come from a shareholder,” said a Hyundai Motor official.

“These details will eventually be announced, and, if Hyundai Motor and Elliott’s needs match, it can lead to a win-win effect,” the official added.


BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]