Hyundai Home Shopping Pressed by U.S. Investor to Give Back Cash

(Bloomberg) -- One of Hyundai Home Shopping Network Corp.’s largest investors is calling for the company to return about $365 million in cash to shareholders, realign executive compensation and split off some of its businesses.

Dalton Investments, which said its accounts and its clients own a 2.5 percent stake, said in a letter Tuesday to Hyundai Home Shopping’s board that the company appears to be suffering from the so-called “Korea Discount,” leaving long-term minority shareholders with “mediocre returns.”

“Hyundai’s disappointing performance appears to be primarily due to poor capital allocation,” according to the letter signed by Dalton senior research analyst James Lim and reviewed by Bloomberg. “While the company has created significant value, this value has not been shared with minority shareholders.”

The Seoul-based company is the latest target under siege by tough shareholders demanding better returns. Elliott Management Corp. last week issued calls to Hyundai Motor Group units to dole out more than $6 billion in dividends and install several board directors nominated by the New York-based hedge fund, escalating its longtime dispute with the conglomerate. Last year, Elliott successfully halted a plan to restructure the auto group, saying it wasn’t in the best interest of investors.

Hyundai Home Shopping is part of the Hyundai Department Store Group, which is separate from the Hyundai Motor Group, although the families at their helm are related.

Since 2010, Hyundai Home Shopping has invested almost $1 billion in non-core businesses that have proved to be “mediocre investments,” as demonstrated by its low stock price, Dalton argued. It said it plans to vote against two independent directors and two audit committee members nominated by the board at the company’s upcoming annual general meeting, which is scheduled for late March.

A representative for Hyundai Home Shopping said the company is preparing plans to continuously boost shareholder returns.

Dalton is calling for Hyundai Home Shopping to return $200 million and subsidiary Hyundai HCN Co. to give back $165 million -- about half of their net cash equivalents each -- through buybacks, dividends or both. The remaining cash flows and cash on hand would suffice to participate in any opportunities that arise, according to Dalton.

Compensation Revamp

Hyundai Home Shopping should split and merge some of its companies to streamline them and unlock shareholder value, Dalton said.

The company should also evaluate senior management’s performance based on the “economic value added,” Dalton said, adding 40 percent to 70 percent of senior managers’ compensation should be in the form of restricted shares to align their interests with minority holders.

“It is time for change. We believe that we can increase shareholder value for all investors if our proposals are accepted,” Lim said.

Dalton, based in California, is a long-term, value-oriented investment firm with about $4 billion in assets under management. Last month, the firm called on the South Korean government and the National Pension Service of Korea to implement a series of market reforms aimed at improving returns for minority shareholders, including a series of tax breaks and taking a more active role in advocating for changes at Korean companies.

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