HYMLY Hyundai Motor (PK)

By Eun-Young Jeong 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (March 23, 2019).

SEOUL -- Elliott Management Corp. lost its battle to boost dividends and gain board seats at South Korean auto giant Hyundai Motor Group, highlighting the challenge that activist firms face in proxy fights with Asia's family-run businesses.

The U.S. hedge-fund manager had scored a victory against Hyundai last year when the conglomerate called off a corporate restructuring that Elliott said lacked business rationale and hurt shareholders.

New York-based Elliott, founded by billionaire Paul Singer, is one of the biggest shareholder activists globally, with around $35 billion in assets. In Asia, Elliott previously targeted South Korea's largest conglomerate, Samsung, and Hong Kong's Bank of East Asia, with mixed results.

On Friday, shareholders at Hyundai Motor Co. and its auto-parts affiliate Hyundai Mobis Co. rejected Elliott's proposals for one-time dividends totaling 7 trillion South Korean won ($6.2 billion), more than four times what the companies' boards proposed. The companies also prevailed with their nominees for independent board seats.

The two publicly traded companies are part of Hyundai Motor Group, which isn't itself listed. As of November, Elliott owned 3% of Hyundai Motor and a 2.5% stake in Hyundai Mobis,

Lee Sung-won, vice president at Truston Asset Management, a longtime investor in both Hyundai companies, said he couldn't side with Elliott despite his dissatisfaction with the dividend plan offered by Hyundai Mobis's board. "Elliott's proposals were too extreme," he said. Mr. Lee had no objections to the Hyundai Motor board's plan.

Elliott's dividend proposals won 13.6% of the vote at Hyundai Motor and 11% at Hyundai Mobis.

"Elliott is encouraged by the support that the shareholder proposals received from independent shareholders of HMC and Mobis," said a spokesman for the hedge fund. "We are confident that the future holds further improvements at Hyundai."

Combined, Hyundai Motor and affiliate Kia Motors are the world's fifth-largest car maker.

Elliott is expected to seek a voice in the South Korean auto maker's coming restructuring, which many investors view as part of an effort by the Chung family to transfer ownership of Hyundai from father to son. It will require a two-thirds approval from shareholders, a higher threshold than the majority needed in Friday's dividends votes.

The Chung family controls roughly 30% of shares in the two Hyundai affiliates.

The share prices of Hyundai Motor and Hyundai Mobis have dropped 18% and 16%, respectively, since Elliott announced its ownership positions in April.

In making a case for the larger dividends, Elliott argued that Hyundai's cash reserves exceed the industry average and are poorly managed. In 2018, Hyundai Motor recorded a net cash balance of 12.7 trillion won and Hyundai Mobis held 7.4 trillion won.

Hyundai said it needs the cash for new investments, such as acquisitions and self-driving car technology, and both affiliates pledged last month to boost shareholder returns.

In Hong Kong, Elliott has engaged in a multiyear battle to force a sale of Bank of East Asia, under Chairman and Chief Executive David Li.

In South Korea, Elliott narrowly lost a 2015 proxy fight against Samsung over a merger that helped the conglomerate's third-generation heir cement control over Samsung Electronics Co., the world's largest smartphone maker. Samsung Electronics, which Elliott later took a stake in, has since boosted dividends and share buybacks.

Multiple shareholder activist campaigns not involving Elliott are unfolding in South Korea.

"Companies are now making more efforts to communicate and listen to shareholder demands," said Kim Yun-kyung, corporate research director at Korea Economic Research Institute.

Shareholder activism has surged in Asia, with more than 10 times as many campaigns in 2017 as in 2011, according to a J.P. Morgan report, reflecting growth in foreign shareholdings and local regulations promoting corporate governance.

Mary Ryu contributed to this article.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

March 23, 2019 02:47 ET (06:47 GMT)

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