It's Singer vs Hyundai Part II as Activist Launches Proxy Fight

(Bloomberg) -- After foiling an $8.8 billion merger last year, billionaire activist Paul Singer isn’t done making life difficult for Hyundai Motor Group’s founding Chung family.

Singer’s Elliott Management Corp. on Wednesday and Thursday issued public letters calling for Hyundai units to dole out more than $6 billion in dividends and install several board directors nominated by the New York-based hedge fund. The move escalated a campaign against the South Korean automotive giant as Elliott turned its long-held demands into formal resolutions that will be voted on at Hyundai’s annual general meetings on March 22.

For Singer, who’s sued countries and taken on some of the world’s biggest companies, the Hyundai campaign will test whether Korea has made strides in becoming more welcoming toward activist investors -- as promised by the government. For the conglomerate’s de-facto leader, Euisun Chung, the governance challenge will pose another headache as he prepares to formally take over from his 80-year-old father and as the scion tries to bolster the business so it can compete in the age of electric and self-driving cars.

"In principle, it makes sense to send a message about excessive cash holdings," said Hyun-su Kim, a fund manager at IBK Asset Management in Seoul. "But considering that global rivals are planning large-scale investments for the long-term changes in the auto industry, Hyundai needs to strike a balance between shareholder returns and investment plans."

In its proposal, Elliott nominated three directors to the board of flagship Hyundai Motor Co. and two directors at the carmaker’s biggest shareholder, Hyundai Mobis Co. Additionally, it sought one-time dividends totaling about 7 trillion won ($6.3 billion) at the two companies, and called for them to create new sub-committees overseeing compensation and corporate governance.

Hyundai Response

In statements earlier this week that didn’t name Elliott, Hyundai Motor and Mobis said that management rejected the demands on dividends and the board directors. But Hyundai Motor accepted the proposal about launching new sub-committees.

It’s the latest salvo in the dispute between the conglomerate and Elliott. Last year, Elliott successfully halted a plan to restructure the auto group, arguing it was not in the best interest of shareholders.

Chung has plans to spend money elsewhere. Hyundai Motor, the maker of Sonata sedans and Tucson SUVs, said on Wednesday it plans to invest 45.3 trillion won in the next five years developing new models and technologies -- such as for electric cars, autonomous vehicles and transportation services. On average, that works out to a 58 percent increase from the previous five years, according to the company.

The heir apparent has also been facing some pressing issues. After a decade-long boom, the world’s fifth-biggest carmaker and competitors are facing cooling demand in China, Europe and the U.S. That challenge is exacerbated by technology shifts such as the rising popularity of ride-hailing services that are making vehicle ownership less necessary.

Then there are shareholders to keep happy. While Hyundai Motor Group and its subsidiaries have taken steps in the right direction, including a 1 trillion South Korean won buyback at Mobis, they don’t go far enough, Elliott said in one of its letters.

"We firmly believe more must be done to correct the company’s severe over-capitalization," Elliott said. "This share buyback must be accompanied by a substantial one-time dividend in order to reduce gross cash balance to a responsible level."

Cash Hoarder

Mobis had a net cash balance of 7.4 trillion won at the end of 2018, exceeding its peers’ average balances by 4 trillion won to 6 trillion won, Elliott said. The hedge fund’s plan would distribute more than half of Mobis’s excess cash and the dividend would be equivalent to 12 percent of its stock price, it said.

Elliott remains open to dialogue with Mobis and may amend its resolutions if new solutions are offered to address balance sheet and governance issues, the firm said. Elliott’s funds manage about $34 billion in assets, including shares in Hyundai Motor, Kia Motors Corp. and Mobis. Elliott owned about 3 percent of Hyundai Motor as of Aug. 13.

Aside from Hyundai, Elliott currently has active campaigns at companies such as Telecom Italia SpA, Absolut vodka-maker Pernod Ricard SA and Ebay Inc.

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