Elliott urges Hyundai Motor, Hyundai Mobis shareholders to join proxy fight

U.S. activist hedge fund Elliott Management Corp. is ratcheting up its proxy battle against South Korea’s Hyundai Motor Co. and its affiliate Hyundai Mobis Co., urging its fellow shareholders to vote for its suggestions to overhaul the companies’ governance and improve shareholders value later this month.

Elliott since Thursday has sent out its letters to shareholders of Hyundai Motor and Hyundai Mobis that urge them to vote for its recommended shareholder resolutions at the companies’ annual general meetings scheduled on March 22. Elliott’s flagship fund Elliott Associates L.P. revealed that it and its affiliated Potter Capital LLC together own 2.9 percent ownership in Hyundai Motor shares and 2.6 percent in Hyundai Mobis.

Stating that Hyundai Motor’s plan to spend 45 trillion won on research and development over the next five years, which was announced late last week, still “fails to include any meaningful steps to remedy its balance-sheet overcapitalization,” Elliott asked its fellow shareholders to back up its proposal to Hyundai Motor to pay dividends of 21,967 won ($19.5) per common share.

Hyundai Motor already rejected the idea when the activist fund requested it earlier last week, saying that combined with 4.5 trillion won worth dividends for common shares, Elliott’s proposal for its dividend would amount to a payout of 5.8 trillion won, more than four times the car maker’s net profit last year. Instead, it promised a bold R&D investment plan of 45 trillion won and some governance enhancement plans last week.

But Elliott responded in the latest letter that Hyundai Motor has 14.3 trillion won in net cash, which is excessive compared with the industry average of around 10 trillion won, and the Korean carmaker would be able to manage to operate and invest in future technology even after it improves shareholders’ return with higher dividend payouts this year.

“Absent any proactive return of excess capital to shareholders via buybacks or other means, our shareholder resolution is necessary to optimize HMC’s balance sheet,” Elliott said in the letter.

It also asked peer shareholders to vote for three other proposals including the establishment of compensation and governance committees, and nomination of three highly qualified independent director candidates as well as of independent shareholder nominees for the company’s audit committee. The transformation of the company’s governance is a must, the activist fund said, adding that the company’s decision to limit the number of independent directors at only three is not in line with “international best practices.”

Elliott also suggested similar resolutions to shareholders of Hyundai Mobis that include the approval of appropriation of retained earnings for the financial year 2018 to dividends of 26,399 won per common share; expanding the board size from its current membership of nine to 11 directors; establishing compensation and governance committees; and nominating two highly qualified independent director candidates as well as of independent director candidates for the company’s audit committee.

Elliott’s latest campaign against the Korean conglomerate comes after Hyundai Motor last week flatly rejected the fund’s demands for the increase in dividend payouts and the appointment of new board members, noting that it hinders capability to secure future competitiveness. Hyundai Motor said Elliot’s suggestions will destroy both corporate and shareholder value.

Hyundai Motor also raised concerns that it would be difficult to secure future investment sources following what Elliott has insisted given that the global automobile industry is transforming to those focusing on autonomous vehicles and connected cars.

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