Activist funds pushing for better corporate governance and increased shareholder returns are expected to make many moves ahead of the annual shareholder meeting season for listed companies early next year.
Major activist funds Truston Asset Management (Taekwang Industries-BYC), Align Partners Asset Management (JB Financial Group), Flashlight Capital Partners-ANDA Asset Management (KT&G), and Value Partners Asset Management (KISCO Holdings) submitted shareholder proposals at this year’s regular general shareholders meetings, but all of them were rejected, according to sources in financial investment industry on Dec. 10.
While activist funds failed to reach their goals at shareholder meetings this year, their pushes for better governance have been steady. Earlier this month, Flashlight Capital Partners (FCP) sent a letter to KT&G calling for improvements to its presidential candidate appointment process, including a checking period for next presidential candidates and an external disclosure of candidate qualifications. In the process of selecting the next president, KT&G said it will remove the provision that allows the incumbent president who has expressed his intention to remain in office to be considered over other candidates and transparently disclose the process of selecting the next president.
KCGI, which has been demanding an improvement in corporate governance at Hyundai Elevator, has also achieved some results. It recently demanded an improvement in the management structure, the normalization of corporate value, and the cancellation of all treasury shares even after Hyundai Group Chairwoman Hyun Jung-eun resigned as a registered director and chairwoman of the board of directors at Hyundai Elevator.
Truston Asset Management is set to launch an exchange-traded fund (ETF) in the middle of December that will focus on stocks expected to expand shareholder value through activism.
Activist funds are expected to increase their presence in the capital markets next year as they look to improve corporate governance this year. As shareholder proposals must be submitted in writing at least six weeks before the shareholders’ meeting date under the Commercial Code, activist funds are expected to become more active towards the end of the year.
The shareholder activism of management participation PEFs will also be closely watched. This year, MBK Partners has tried to buy stakes in companies such as Osstem Implant and Hankook & Company with the aim of improving corporate governance and raising corporate value. It plans to increase corporate value by introducing a professional management system by taking control of Hankook & Company.
However, there are some differences between activism funds and shareholder activism as activism funds aim to influence corporate decision-making, while management participation-type PEFs launch tender offers with the ultimate goal of securing management control.
This has led to some controversy in the financial investment industry over hostile M&As. When MBK Partners made a tender offer for Osstem Implant, it acquired a 9 percent stake in former Chairman Choi Kyu-ok and had discussions with Choi to take over management control, but this tender offer is being conducted without the consent of the largest shareholder, Chairman Choi Hyun-beom.
In addition, Align Partners Asset Management’s shareholder activism against SM Entertainment spilled over into a management dispute between HYBE and Kakao due to opposition from former executive producer Lee Su-man, a major shareholder of SM Entertainment.
As a result, some experts pointed out that private equity funds aim for short-term gains by increasing the value of companies after taking over their management control.