[THE INVESTOR] The two largest proxy advisors -- Institutional Shareholder Service and Glass Lewis -- have recommended investors to vote against Hyundai Motor Group’s governance overhaul plan, disrupting the upcoming shareholders’ vote on May 29.
ISS became the latest to join Glass Lewis and US activist fund Elliott Management to oppose the spin-off merger deal between Hyundai’s two affiliates Mobis and Glovis, saying the “deal appears to be unfavorable for Mobis’ shareholders.” Glass Lewis earlier also argued that the deal carries “questionable logic” and “inadequate valuation.”
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In response, Hyundai said ISS’ opposition is “deeply regretful,” claiming the US proxy adviser is making a mistake and is misleading the market. Mobis CEO Lim Young-deuk also reiterated on May 16 that the deal is crucial to improve shareholder value for Mobis, urging the stockholders to vote in its favor.
In March, Hyundai announced its parts making affiliate Mobis would spin off its lucrative module and after-service parts business, and merge with logistics unit Glovis, following the government’s persistent calls to improve the complex ownership structure that gives too much power to the controlling Chung family.
Experts, however, argued that the proposed merger deal would not benefit corporate governance of the auto giant, but will be simply used for the Hyundai patriarch Chung Mong-koo to hand down the conglomerate to his son, Vice Chairman Chung Eui-sun.
Who holds Mobis shares?
Hyundai’s chairman and group affiliates own 30.2 percent. The National Pension Service has 9.8 percent, while foreign investors, including Elliott, hold 48.6 percent, and the rest is owned by individual investors.
The merger decision, which requires two-thirds of the shareholders present to vote in favor, will highly be dependent on the number of participating foreign investors and the NPS’ decision.
What is NPS’ stance on the deal?
NPS, the second-largest shareholder of Mobis, will play a decisive role in the upcoming vote. Korea’s largest institutional investors has yet to state its position, but experts say it is being very prudent especially after its approval of the controversial merger of Samsung companies back in 2015.
NPS holds about equal amount of shares in both Mobis and Glovis, so the spin-off merger deal won’t change the total value of the pension fund’s stake, but it will look into other areas as well, including the social effects.
The state-owned pension fund is expected to make its decision after hearing opinions of outside counselors, including the Korea Corporate Governance and Service.
What is Elliott’s role in the upcoming merger deal?
Elliott Management, the New York-based hedge fund run by billionaire Paul Singer, is not new in Korea, after it narrowly lost a proxy battle with Samsung Group in 2015.
Unlike the Samsung case, when Elliott held over 5 percent in Samsung C&T, the hedge fund is believed to own a tiny 1.5 percent in Mobis.
But Elliott’s campaign cannot be ignored because it could affect the decision of other foreign stockholders who hold almost half the stake in Mobis.
By Ahn Sung-mi (firstname.lastname@example.org)