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Elliott makes suggestions to Hyundai Motor

Apr 25,2018
Elliott Advisors proposed changes to Hyundai Motor Group’s restructuring of its corporate governance to maximize its profit as a shareholder, but no direct change is likely to take place anytime soon.

The hedge fund’s Hong Kong unit, which owns a $1 billion stake in three of the group’s affiliates, requested Hyundai Motor Monday evening to take on a holding company structure and increase dividend payments under its own proposed plan, called “Accelerate Hyundai Proposals.”

Elliott asked Hyundai Motor to become a holding company by merging with its parts-making affiliate Hyundai Mobis to “create a truly comparable and global auto OEM.”

It added that a plan proposed by Hyundai Motor early this month to make Hyundai Mobis a major affiliate by spinning off its module and after-sales service businesses and merging them with logistics affiliate Hyundai Glovis and increasing the Hyundai Mobis shares owned by Chairman Chung Mong-koo and his heir apparent Vice Chairman Chung Eui-sun triggers “significant tax costs to shareholders.”

Elliott wasn’t satisfied with Hyundai Motor’s long-term plan to make Hyundai Mobis’ business centered on future mobility because it thinks the spun off businesses are still “profitable.”

It also asked the company to set a shareholder return based on net income instead of free cash flow, in an apparent attempt to maximize dividends paid to shareholders.

It asked Hyundai Motor Group to increase payout ratio to 40 to 50 percent based on net income, claiming such a rate is “comparable to global auto and auto parts peers.” According to industry data, Hyundai Motor’s payout ratio is about 30 to 50 percent of free cash flow while Hyundai Mobis’ is 20 to 40 percent of free cash flow.

“Current shareholder return policies are poorly communicated,” the hedge fund added.

The board was also in need of improvement, according to Elliott.

Elliott asked the auto company to appoint three independent board members with “well-suited and exemplary international corporate backgrounds.” It said the current board members “lack diversity.”

When Elliott Advisors, the Hong Kong unit of the U.S.-based activist hedge fund, first revealed its $1 billion stakes in Hyundai Motor, Kia Motors and Hyundai Mobis, it added that it “welcomes” the proposed plan by the auto company.

Yet it managed to temporarily shake up the share price of the affected affiliates with its announcement because investors remember when it interfered with a Samsung merger in 2015.

“Elliott’s stakes in Hyundai Motor and its other two affiliates are just not that big enough to have a genuine influence on its corporate governance restructuring plan,” said Lee Jae-il, an analyst from Eugene Investment. “It seems the announcements are intended at shaking up the stock market and raising the share price,” he added.

Hyundai Motor shares rose by 1.88 percent Tuesday to 162,500 won ($150) per share.

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