Two influential proxy advisory firms have thrown their support behind Elliott Management Corp.’s opposition of an $8.8 billion deal between two Hyundai Motor Group units, signaling more hurdles for an overhaul that may help the founding family’s patriarch pass control of the South Korean conglomerate to his son.
Glass Lewis & Co. and Institutional Shareholder Services Inc. have come out against the restructuring plan, which calls for the automotive giant to sell some of its businesses to affiliate Hyundai Glovis Co. ISS said in a report Tuesday that although the transactions are compliant with South Korean laws, the deal appears to be unfavorable for Hyundai Mobis Co. shareholders. Both advisers urged investors in the parts maker to vote against the plan.
The criticisms are a setback for the group’s heir apparent -- Vice Chairman Euisun Chung -- as he prepares for Korea’s biggest proxy fight since Samsung Group narrowly defeated billionaire Paul Singer’s Elliott by muscling through a controversial merger of two units nearly three years ago. Should the Hyundai deal, which requires a two-thirds majority to pass in a vote scheduled on May 29, be blocked it would mark a landmark victory for foreign activist investors in a country where all such campaigns have failed.
Though Samsung beat Elliott in 2015, allowing the chairman’s son to solidify his grip on the group, it came at a cost as the crown prince of the business empire and the country’s president were jailed for corruption linked to the merger. Elliott is seeking $670 million in compensation from the Korean government for inappropriately meddling in that deal.
Hyundai Mobis shares fell 0.6% to close at 238,500 won, while Glovis dropped 3.8%, the most since May 4. Shares of Hyundai Motor Co., the largest company in the group, fell 1.7%.
“The board has failed to articulate a clear business rationale for the transaction and has not provided any details in support of the purported synergies,” ISS said in its report. “Moreover, despite the board’s claims that the proposed restructuring plan aims to address the circular ownership issues, the transaction itself will have no impact on cross-ownership,” it added.
Glass Lewis, which provides advice to 1,300 institutional investors, called the plan “profoundly unattractive” in its own report Monday. It argues the deal undervalues the assets being sold, lacks business logic and seems designed to benefit Hyundai’s founding family, the proxy adviser said in a report on Monday.
The recommendations from ISS and Glass Lewis may be crucial to the outcome of the Hyundai deal, as neither the Chungs nor Elliott have the votes to determine the outcome. Foreign investors’ holdings in Hyundai Mobis exceeded 45% -- more than enough to block the deal -- as of April, according to data compiled by Bloomberg. The activist investor on Tuesday declined to comment on the proxy advisers’ statements.
Hyundai, a sprawling group of 56 companies with more than $200 billion in assets, said it would continue its efforts to communicate with investors about the merits of the transaction.
“We believe our proposed restructuring plan is the optimal solution to secure future competitiveness as well as resolve regulatory issues for the entire group,” Hyundai Motor Group said in a statement after Glass Lewis’ announcement. “We will continue to communicate the benefits of our plans with all of the stakeholders.”
Chung, the 47-year-old son of the group’s octogenarian patriarch, spoke with Bloomberg in an unprecedented interview last week, whereby he acknowledged Mobis needs to do more to win over shareholders.
Elliott, which owns more than $1 billion stake in three Hyundai units -- Hyundai Motor, Mobis and Kia Motors Corp. -- has opposed the restructuring plan, saying it shortchanges shareholders. Instead of spinning off divisions of a group of suppliers and merging them with its logistics arm, the U.S. fund has proposed that Hyundai Motor Co. merge with Mobis to form a holding company that would oversee the group.
Elliott has also urged Hyundai to return more than 12 trillion won (US$11.2 billion) in cash to shareholders.
By Scott Deveau and Sohee Kim