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The Korea Herald
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THE INVESTOR
March 28, 2024

Automobiles

Why Capital Group’s Hyundai stake isn’t a big deal

  • PUBLISHED :April 25, 2018 - 17:13
  • UPDATED :April 26, 2018 - 10:14
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[THE INVESTOR] Hyundai Motor Group appeared to be downplaying the recent additional stake acquisition by US management firm Capital Group, saying that it was nothing more than a financial investment.

“The acquisition seems to be little more than an investment,” a Hyundai official told The Investor on condition of anonymity. “Unlike Elliott, Capital is a long-term investor. It doesn’t seem likely to join hands with Elliott to stage a proxy fight against Hyundai.” He added that Capital would have little to gain. 


Related:
Hyundai, rethink the holding company: Elliott
We have US$1b stake in Hyundai Motor: Elliott
Same Elliott, different situation: FSC chief


Capital that has been investing heavily in big Korean firms has raised its stake in Hyundai Motor from 7.33 percent to 7.41 percent as of April 10. It’s the third-largest shareholder following Hyundai Mobis with 20.78 percent and the National Pension Service with 8.44 percent. It has further widened the gap with Hyundai Motor Group Chairman Chung Mong-koo who owns 5.17 percent and his son Chung Eui-sun with 2.28 percent.

As part of its recent governance reform plans, the group announced it would spin off the module manufacturing and after-sales business of Hyundai Mobis to merge it with Hyundai Glovis, the logistics unit. But US activist fund Elliott Management is resisting the plans, urging it to merge Hyundai Motor and Hyundai Mobis and form a holding unit that oversees the whole group. 

Capital’s stake in Hyundai Mobis is unknown, but it’s estimated to reach about 4.86 percent. Stakes beginning from 5 percent must be publicized. It is believed to be the fifth-largest shareholder after Kia Motors with 16.88 percent, the NPS with 9.28 percent, Chairman Chung with 6.96 percent and Hyundai Steel with 5.66 percent. The junior Chung owns no stake in the car parts maker that serves as the group’s de facto holding unit.

Elliott claims it holds more than US$1 billion shares in Hyundai Motor, Kia Motors and Hyundai Mobis. Its stake in each of the three companies is estimated to be less than 1.5 percent.

Industry watchers believe Capital won’t be too quick to take action, saying it is likely to maintain a wait-and-see position as its asset values continued to grow over the week after Elliott’s demands, including more generous dividends payouts, were announced early this week.

On April 25, Hyundai Motor’s preferred shares, with higher dividends payout rates, soared more than 3 percent from the previous day, while ordinary shares were up 0.92 percent.

“I think Elliott’s real intention is boosting shareholder benefits rather than opposing the merger itself,” said Koh Tae-bong, an analyst at Hi Investment and Securities. “Like the Samsung case, investors would focus more on Hyundai’s follow-up measures like higher dividends and cancellation of treasury shares.”

A Capital spokesperson declined to comment on Hyundai’s reform plans, citing a company policy that bans commenting on an individual company.

“Still, it remains to be seen what’s behind the increase in Capital’s stake in big Korean big firms,” said another source. “The Korean government plans to revise laws to better protect minority shareholders, including the possible adoption of a cumulative voting system. The firm could make its voice when the timing comes.”

The cumulative voting system gives each shareholder one vote multiplied by the number of board directors to be elected. Individual investors can join forces to seat their favorable director on the board and better represent their voice in management affairs.

Capital, based in Los Angeles, is one of the largest management firms in the US and the home of American Funds, a family of more than 40 mutual funds. It has about US$1.6 trillion assets under management.

Hyundai Mobis shareholders will vote on the merger plan on May 29. The deal should be approved by more than two-thirds of the participating shareholders and more than one-third of the total shares issued. If about 70-80 percent of shareholders attend the vote, 47-54 percent of them should vote in favor of the deal.

Hyundai has secured about 30.2 percent of favorable shares, including 6.96 percent owned by Chairman Chung. Foreign investors who make up 48.39 percent of the total shareholders are expected to play a key role in the deal’s approval.

By Lee Ji-yoon (jylee@heraldcorp.com)

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