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Hyundai Motor nixes restructuring plan

May 22,2018
Hyundai Motor Group withdrew a controversial plan to restructure itself on Monday and pledged to devise a new one in the coming months after shareholders balked at the automaker’s original proposal.

Chung Eui-sun, the vice chairman steering the company’s corporate reform efforts, said Monday that Hyundai would abort the current plan after receiving negative feedback from the market. As a result, the shareholder meetings scheduled for May 29 at Hyundai Mobis and Hyundai Glovis, two affiliates where the proposal was planned to be put to vote, will also be canceled.

“In the course of pursuing the reform proposal recently, Hyundai Motor realized that there is lack of communication with our shareholders and the market,” Chung said in a statement. “We concluded that it will be difficult for the latest proposal to effectively take place without sufficient confidence and support from the shareholders and the market.”

Chung said Hyundai Motor Group would “complement and improve the corporate governance overhaul plan.”

The decision was made at a board of directors meeting at Hyundai Mobis and Hyundai Glovis on Monday evening. It will take “multiple months” to again accommodate market and shareholder opinion and come up with a new plan, a Hyundai Motor official said Monday.

“In order to become a more transparent company that can complete on a global basis, we intend to actively and humbly seek out and accept thoughts and opinions from our shareholders and the market in the development of our updated restructuring plan,” Lim Young-deuk, president of Hyundai Mobis, said in a letter to shareholders on Monday.

Hyundai Motor Group’s attempt to restructure itself hit a rut when American activist hedge fund Elliott Management revealed $1 billion stakes in three major affiliates - Hyundai Motor, Kia Motors and Hyundai Mobis - and began intervening after Hyundai announced an ambitious corporate overhaul in March. It was supposed to be the company’s first major step toward resolving its byzantine cross-shareholding structure in response to the Moon Jae-in government’s push for corporate reform in Korea.

Elliott said the 0.61:1 merger ratio between Hyundai Mobis and Hyundai Glovis would undervalue Mobis shares and be unfair to its shareholders. The hedge fund also raised doubts about the logic of putting Mobis’ domestic after-sales service and module businesses under Glovis, while maintaining the same segments for the global market.

In response, Hyundai Motor Group promised to retire $890 million worth of treasury stocks and Hyundai Mobis would cancel $550 million worth of treasury stocks.

Some analysts characterized Elliott’s objection as an attempt to take short-term profit, but other financial institutions have also expressed opposition to the plan.

Last week, Glass Lewis and ISS, two major proxy advisers, urged shareholders to vote against the proposal. The Korea Corporate Governance Service, an advisory group under the National Pension Service, which holds a decisive 9.8 percent share in Hyundai Mobis, also voiced opposition to the plan.

As a last resort, Chung flew to New York last week, presumably to talk foreign investors into supporting his plan. In a rare impromptu interview with Bloomberg, Chung showed confidence in the plan, brushing off Elliott’s actions as just the “way they do business.”

Now, Chung appears to be more flexible to the market. “We will re-evaluate our restructuring plan to better enhance the group’s business competitiveness and corporate governance as well as strengthen shareholder value,” Chung said on Monday.


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