Glass Lewis joins Elliott in opposing Hyundai merger

Move may complicate efforts to overhaul automotive giant

NEW YORK: A big proxy adviser joined Elliott Management Corp in opposing an US$8.8bil deal between two Hyundai Motor Group units, complicating the automotive giant’s ability to get shareholders to vote for an overhaul that may help the chairman pass on control of the South Korean conglomerate to his son.

Glass Lewis & Co, which provides voting advice for more than 1,300 institutional clients, recommended that Hyundai Mobis Co investors vote against the “profoundly unattractive” plan, which calls for the company to sell some of its businesses to affiliate Hyundai Glovis Co.

The deal undervalues the assets being sold, lacks business logic and seems designed to benefit Hyundai’s founding family, the proxy adviser said in a report on Monday.

The criticism is a setback for Hyundai’s Chung family as it prepares for South Korea’s biggest proxy fight since Samsung Group narrowly defeated billionaire Paul Singer’s Elliott in muscling through a controversial merger of two units nearly three years ago.

Should the Hyundai deal, which requires a two-thirds majority to pass in a vote scheduled on May 29, be blocked it would mark a landmark victory for foreign activist investors in a country where all such campaigns have failed.

Though Samsung beat Elliott in 2015, allowing the chairman’s son to solidify his grip on the group, it came at a cost as the heir-apparent to the business empire and the country’s president were jailed for cor- ruption linked to the merger. Elliott is seeking US$670mil in compensation from the Korean government for inappropriately meddling in that deal.

Shares of Mobis were little changed, while Glovis tumbled 3.5% in Seoul. Shares of Hyundai Motor Co, the largest company in the group, fell 1%.

Institutional Shareholder Services Inc, another major proxy adviser, has yet to come out with its recommendations, but it and Glass Lewis may be crucial to the Hyundai deal’s outcome as neither the Chungs nor Elliott have the votes to determine the outcome.

Foreign investors’ holdings in Hyundai Mobis exceeded 45% – more than enough to block the deal – as of April, according to data compiled by Bloomberg.

Hyundai, a sprawling group of 56 companies with more than US$200bil in assets, said it would continue its efforts to communicate with investors about the merits of the transaction.

“We believe our proposed restructuring plan is the optimal solution to secure future competitiveness as well as resolve regulatory issues for the entire group,” Hyundai Motor Group said in a statement after Glass Lewis’ announcement. “We will continue to commu- nicate the benefits of our plans with all of the stakeholders.”

Hyundai Motor’s heir apparent, vice chairman Chung Euisun, spoke with Bloomberg in an unprecedented interview last week, whereby he acknowledged Mobis needs to do more to win over shareholders.

Elliott, which owns more than US$1bil stake in three Hyundai units – Hyundai Motor, Mobis and Kia Motors Corp – has opposed the restructuring plan, saying it shortchanges shareholders.

Instead of spinning off divisions of a group of suppliers and merging them with its logistics arm, the US fund has proposed that Hyundai Motor Co merge with its Mobis to form a holding company that would oversee the group.

Elliott has also urged Hyundai to return more than 12 trillion won (US$11.2bil) in cash to shareholders. — Bloomberg

We will continue to communicate the benefits of our plans with all of the stakeholders.