Elliott's Key Proposals for Hyundai Dealt a Blow by Glass Lewis

(Bloomberg) -- Elliott Management Corp.’s efforts to force Hyundai Motor Co. to pay almost $4 billion in one-time dividends and revamp the board suffered a setback as a prominent shareholder advisory firm came out in support of some of the automaker’s proposals in the proxy fight.

Glass Lewis & Co. urged shareholders to vote against the New York-based hedge fund’s proposal for the cash payment, saying Hyundai Motor would need to invest heavily in research and development as it prepares for the future. It also favored the automaker’s nominees for independent directors, opposing Elliott’s. A shareholder vote on the proposals is set for March 22.

“We remain reluctant to recommend shareholder support for such a large one-time dividend payout at this time," Glass Lewis said in a report. That’s "given the proposed timing and method of the capital return and the rapidly evolving nature of the auto industry, which we acknowledge will require significant R&D spend and potential M&A activity by the company in order to enhance its competitiveness and long-term financial returns,” it said.

Elliott, which is run by billionaire Paul Singer, is seeking dividends of 7 trillion won ($6.2 billion) from both Hyundai Motor and its biggest shareholder Hyundai Mobis, and has called on them to create new sub-committees overseeing compensation and governance. It argues that doing so would leave both companies with ample cash to pounce on any opportunities that arise.

Elliott also nominated three directors to the board of flagship Hyundai Motor and two directors to Mobis.

Glass Lewis said that while it agrees with Elliott that Hyundai Motor is “significantly overcapitalized” relative to peers and the excess is dragging down returns, it recognizes the Korean automaker has “at least taken steps in the right direction” to bolster value for shareholders. Hyundai Motor has recently disclosed its plan to boost operating profit margin to 7 percent by 2022 from 2.1 percent in 2018.

While the advisory firm backed Hyundai Motor’s three candidates for independent directors, it opposed the nominations of Albert Biermann and Lee Won-hee as inside directors, citing independence of the board and the nominating committee. It backed Euisun Chung -- the conglomerate’s de-facto leader and heir apparent at the company officially headed by his 80-year-old father -- as an internal director.

Elliott’s proposals are the latest salvo in its dispute with Hyundai. Last year, Elliott successfully halted an $8.8 billion merger for restructuring of the auto group, arguing it was not in the best interest of shareholders.

Hyundai Motor Group has said it’s conserving cash at its subsidiaries to survive intense competition in the global auto industry, where rivals from Volkswagen AG to General Motors Co. are plowing in billions of dollars to develop electric, driverless and flying cars as newer technologies upend transportation.

One of the nominees at Hyundai Mobis, Karl-Thomas Neumann, the former chief executive officer of Opel, said the company’s approach to conserving cash was needed for future investment and not use it to sate short-term interests of investors.

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