Companies face vocal activist funds ahead of shareholders' meetings

Samsung C&T headquarters in southeastern Seoul / Newsis

Samsung C&T headquarters in southeastern Seoul / Newsis

By Anna J. Park

Shareholder activism is expected to have a stronger presence during the annual shareholders' meeting season early next year, with vocal activist funds intending to exercise their rights by urging companies to take action to enhance shareholder value.

According to the financial industry on Friday, Samsung C&T, KT&G, Hyundai Elevator and DB HiTek have been each receiving calls from domestic and global activist funds demanding they increase shareholder returns and improve corporate governance.

Samsung C&T's board of directors received a proposal letter from U.S.-headquartered Whitebox Advisors, which holds a 0.5 percent stake of the Korean company, asking it to increase shareholder returns by reallocating cash and income from affiliates towards dividends and share buybacks. The global asset manager also urged the board to implement a transparent executive compensation structure aligned with minority shareholders.

"Despite continued engagement from minority shareholders, Samsung C&T's new three-year shareholder return policy does little to address the glaring and expanding discount between the company's assets and its share price," the letter by Whitebox Advisors reads.

"We continue to believe that there is significant shareholder value to be realized at Samsung C&T. If the board follows our recommendations and takes the clear steps required to improve shareholder returns, refine capital allocation and enhance corporate governance, we firmly believe the company's share price will begin to reflect the true value of its assets."

U.K.-based Palliser Capital and City of London Investment Management (CLIM) also both sent shareholder letters to the Samsung affiliate, saying the shares of the firm are "grossly undervalued by the market due to sub-optimal capital allocation, historic corporate governance issues and a complex corporate structure" and urging Samsung C&T to implement a share buyback and increase dividends.

The combined stake of the three global investment funds stands at 1.6 percent of Samsung C&T shares.

A KT&G factory in Daejeon / Courtesy of KT&G

A KT&G factory in Daejeon / Courtesy of KT&G

Flashlight Capital Partners (FCP), a domestic activist fund, sent a shareholder letter to KT&G earlier this month, requesting it to overhaul the CEO appointment process within the firm's board. The activist fund, holding less than a 3 percent stake in the tobacco company, raised a voice of criticism against the incumbent CEO, Baek Bok-in, strongly opposing Baek's reappointment at the helm of the company.

"After Baek's taking office in 2015, KT&G's stock price fell by 19 percent, while the KOSPI index rose by 26 percent," FCP's letter stated.

FCP also condemned company management's focus on outward revenue growth at the expense of declining profits. Actually, KT&G's revenue has grown by 40 percent over the past nine years, while the firm's operating profit has fallen by 17 percent.

KCGI Asset Management (KCGI AM), another activist fund headquartered in Korea, has been urging Hyundai Elevator to improve corporate governance and increase shareholder value through a complete share buyback. The asset management firm had earlier succeeded in inducing the resignation of Hyun Jeong-eun, then-chair of Hyundai Elevator's board of directors, with its shareholder proposal sent in August, yet it continues to urge the firm to grant more independence at its board.

KCGI AM also urged DB HiTek, a major foundry firm, to form an independent board of directors, while calling for the resignation of Kim Joon-ki, the founder of the company.

These series of shareholder proposals by various activist funds are expected to continue into the new year, ahead of the annual shareholders' meeting season in March.

"Shareholder proposals should be sumitted to companies up to five weeks prior to the annual shareholders' meeting. Given that most shareholders' meetings are held in March, the proposals are likely to come out until the end of February," said Kim J00n-seop, an analyst at KB Securities.

Park Ji-won

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