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Hyundai overhaul hits another roadblock with ISS opposition
[SEOUL] Opposition to Hyundai Motor Group's proposed new ownership structure grew on Tuesday with two major US proxy advisers urging investors to reject a plan they said would benefit family members but not minority shareholders.
ISS joined Glass Lewis and US hedge fund Elliott in opposing the plan for parts supplier Hyundai Mobis, citing a "lack of compelling business justification" and "valuation that appears to be unfavorable for company shareholders."
Under the deal announced in March, Mobis would spin off its module and after-service parts businesses, which would then be merged with logistics firm Hyundai Glovis Co Ltd.
Hyundai Motor Group Chairman Chung Mong-koo and his son then plan to sell their shares in Glovis to buy stakes in Mobis, consolidating their holdings and laying the groundwork for a father-to-son succession.
But ISS, Glass Lewis, Elliott and others say that Mobis is selling the businesses too cheaply and that Mobis shareholders will be left short-changed.
"The transaction presents an attractive opportunity for the controlling shareholder to lay the groundwork for resolving the circular ownership issues within the group and the related party concerns at Glovis, while retaining firm control over group companies," ISS said in a report.
"In contrast, the rationale for unaffiliated Mobis shareholders to support this proposal appears less-than-compelling," it said.
The proposed terms are "profoundly unattractive for Mobis shareholders, yet more than reasonable for existing Glovis shareholders," Glass Lewis said in a report.
Hyundai Mobis said in a statement that it disagreed with the ISS conclusions, which "fail to recognize the substantial value this transaction will create for Hyundai Mobis' shareholders".
"Hyundai Mobis strongly recommends stockholders vote FOR the proposed spinoff and merger with Glovis," it said, saying the deal is "in the best interest of all stockholders."
Hyundai Mobis said it "did consider alternative structures, such as holding company structures," but the structures have "significant regulatory and management hurdles".
It remains to be seen whether there is sufficient opposition to derail the deal at a May 29 vote. Two-thirds of votes by Hyundai Mobis shareholders present need to be in favour of the deal for it to be successful.
Foreign shareholders own nearly half of Mobis, which is set to be the group's de facto holding firm, but Hyundai's chairman and the group's affiliates own around 30 per cent.
Lee Jae-il, an analyst at Eugene Investment & Securities, said the vote could depend on the position of South Korea's National Pension Service fund and that Elliott would have less clout than in other battles it has waged in South Korea as it is not that big a shareholder in Mobis.
"The NPS, which has a stake of almost 10 per cent, has the casting vote, and if it does not oppose the plan, there is a higher chance that the deal will get approval," he said.
NPS declined to comment.
The chief of South Korea's antitrust agency, Kim Sang-jo, has said the plan was a "positive" step towards improving the group's ownership structure.
Last month, Elliott, which owns more than 1.5 per cent of Mobis, proposed what it called a more efficient holding company structure and more independent board members.
Hyundai Motor and Hyundai Mobis have since announced share buybacks and cancellations in the hope of bringing shareholders on side. But Elliott has said these do not go far enough to address corporate governance issues.