Recently, there has been a trend where shareholder demands for increased shareholder returns have slightly subsided as proposals such as the retirement of repurchased stocks or dividend expansions were rejected at shareholder meetings. While companies have temporarily relieved the pressure by proactively presenting alternatives such as share buybacks, there are concerns that fundamental improvements in corporate value and other challenges still need to be addressed in the future.
According to industry sources on March 17, a proposal for dividend expansion by five activist funds, including City of London Investment Management, was rejected at the Samsung C&T shareholders’ meeting held on March 15. The proposal received only 23 percent support and was consequently dismissed. The five activist funds demanded that the company repurchase 500 billion won (US$375.52 million) worth of treasury stocks and pay dividends of 4,500 won and 4,550 won per share for common and preferred stocks, respectively. However, none of these proposals garnered sufficient support from shareholders.
There is also a strong possibility that the demand from activist fund Tcha Partners Asset Management to completely eliminate treasury stocks at the upcoming Kumho Petrochemical shareholders’ meeting on March 22 will also not be accepted. The global proxy advisor ISS mentioned, “[The shareholder proposer] failed to provide sufficient evidence to prove that treasury stocks were or will be used for the purpose of enhancing control,” thus siding with the company.
Earlier, Tcha Partners argued, “Kumho Petrochemical is not being properly assessed in the market due to concerns about the potential disposal or sale of its significant 18.4 percent treasury stocks to third parties, which could be used to safeguard the management rights of the controlling family. In response, Kumho Petrochemical’s partial acceptance of Tcha Partners’ demand to retire 2,624,417 treasury stocks over the next three years is likely to benefit the company in the upcoming shareholder showdown. This decision involves half of the company’s treasury stocks, which amount to 18.4 percent.
Despite the demands from activist funds not gaining much traction, companies are not feeling optimistic. Immediately after both proposals for dividend expansion and treasury stock repurchase by activist funds were rejected, Samsung C&T’s stock price plummeted by 9.78 percent compared to the previous trading day. At the shareholders’ meeting, there were also demands for the presentation of investment plans for new businesses. Lee Chang-min, a professor of business administration at Hanyang University, commented, “Considering that the ownership structure has favored the controlling family from the start, it’s unrealistic to view this as a defeat for the activist funds. The management also likely sees this shareholders’ meeting as an opportunity to recognize the issues.”