Proxy advisor Glass Lewis urges vote against Hyundai Mobis plan

[SEOUL] US proxy advisor Glass Lewis on Monday recommended shareholders reject Hyundai Mobis Co Ltd's proposed spin-off merger plan, citing "questionable business logic" and "inadequate valuation".

The advisor's report, seen by Reuters, adds to the challenges to the deal which analysts say lays the groundwork for the succession of Hyundai Motor Group's heir apparent. Glass Lewis is one of the largest proxy advisory firms that gives voting recommendations to institutional investors.

Last week, US activist fund Elliott Management, which owns over 1.5 of the shares in Hyundai Mobis, said it will vote against the deal, arguing the parts supplier is handing over its lucrative business to an affiliate at a "depressed" valuation.

In March, Hyundai Mobis, a affiliate of Hyundai Motor Co , announced its plan to spin off its domestic module and after-service parts businesses and merge them with logistics affiliate Hyundai Glovis Co Ltd, a plan which will be put to a shareholder vote on May 29.

After the merger, Hyundai Motor Group Chairman Chung Mong-koo and his son, Vice-Chairman Chugn Eui-sun, will sell their holdings in Glovis to buy stakes in Mobis, cementing the family's grip on the de-facto controlling company.

It is part of a series of deals which Hyundai Motor Group, South Korea's No.2 conglomerate after Samsung, said is aimed at resolving its complex ownership structure following the government's call to address its circular shareholdings.

Glass Lewis said the arrangements "clearly result in a substantial value transfer in favor of Glovis' shareholders, most notably including the family shareholders, who own roughly 30 of Glovis but only 7 of Mobis".

The proposed terms of the spin-off merger are "profoundly unattractive for Mobis shareholders, yet more than reasonable for existing Glovis shareholders," Glass Lewis said.

"Elliott has convincingly argued that the current Hyundai Motor Group restructuring plan represents a sub-optimal half-step toward resolving Hyundai Motor Group's circular shareholding structure," the report said.

Also echoing Elliott's view, Glass Lewis said it believes the spin-off merger shares many of the shortcomings in Samsung Group's 2015 deal involving two of its affiliates.

In 2015, Elliott narrowly lost a battle to block the Samsung deal, which later featured in a corruption scandal which led to the jailing of the country's former president and bribery charges against Samsung Group heir Jay Y Lee, who denies any wrongdoing.

Hyundai Motor Group responded that it would continue to communicate the benefits of the plan with all stakeholders.

"We believe our proposed restructuring plan is the optimal solution to secure future competitiveness as well as resolve regulatory issues for the entire group," it said in a statement.

REUTERS