Will KT&G surrender to activist hedge funds just like Taekwang, SM Entertainment did?
2023-01-26
來源： 開云體育app官方網站
KT&G's headquarters in Seoul / Korea Times file
By Park Jae-hyuk
Taekwang Industrial's recent surrender to Truston Asset Management, which had urged it not to finance its cash-strapped co-affiliate Heungkuk Life Insurance, led market observers to pay attention to how KT&G will respond to Flashlight Capital Partners (FCP) and Anda Asset Management, both of which have requested spinning off Korea Ginseng Corp (KGC).
Given that SM Entertainment was also pressured earlier this year by Align Partners Capital Management, attention has been focused on how the tobacco maker will counteract the growing calls from activist hedge fund managers here and overseas.
Taekwang Industrial said in its regulatory filing late Wednesday that the company eventually decided not to acquire any of the newly issued Heungkuk Life shares worth 280 billion won ($215 million), although it had once considered the acquisition.
Earlier this month, Taekwang Industrial was rumored to be planning to aid Heungkuk Life by participating in the insurer's paid-in capital increase of 400 billion won.
Although both companies are affiliates of Taekwang Group, the chemical firm is not a shareholder of the life insurer. The rumor therefore led to criticism from Truston, the second-largest shareholder of Taekwang Industrial with a 5.8 percent stake, as well as civic groups defending minority shareholders.
In response to threats of legal action, Taekwang Industrial accepted their request.
"In order to contribute to stabilizing the financial market and secure stable profits from investments using our cash reserves, we had once considered acquiring the newly issued shares of Heungkuk Life," Taekwang Industrial said in a press release. "However, we decided not to acquire the shares, to focus on innovating our businesses and discovering new opportunities."
Taekwang Industrial's headquarters in Seoul / Korea Times file
SM Entertainment is another company that accepted an activist hedge fund's request to reform its governance structure. Align had criticized SM Entertainment founder Lee Soo-man of damaging shareholder value by paying billions of won in royalties every year to his wholly owned company, Like Planning.
SM Entertainment founder Lee Soo-man / Courtesy of SM Entertainment
During the entertainment agency's regular general meeting of shareholders in March, the appointment of an auditor recommended by Align was passed. In October, SM Entertainment's board of directors decided to terminate the company's contract with Like Planning.
As activist hedge fund managers continue to flex their muscles against Korean firms, speculations have arisen that KT&G may have no choice but to increase shareholder returns.
In October, FCP sent a letter to KT&G to call for the KGC spinoff. The Singapore-based fund manager also held a teleconference with KT&G shareholders this month, and proposed an open debate with the KT&G CEO.
Last month, the tobacco maker decided to repurchase its treasury shares worth 350 billion won. The company also announced that it is considering increasing its annual dividend to 5,000 won per share from 4,800 won.
"We have communicated with our shareholders and listened to their reasonable opinions," a KT&G official said.
Domestic securities analysts do not anticipate KT&G to accept the activist hedge funds' request.
"It will cost significantly if KT&G spins off KGC and lists the ginseng maker on the stock market," a securities analyst said on condition of anonymity. "In addition, KT&G's corporate value will deteriorate after KGC's spinoff."
In 2006, U.S. billionaire Carl Icahn made a similar request to KT&G, in an apparent attempt to boost its stock price. He is said to have earned 150 billion won at that time, by selling 7 million KT&G stocks just a year and two months after purchasing them.
