U.S.-based activist hedge fund Elliot Management is in the spotlight again as it has declared war against Hyundai Motor Group, which recently announced a plan to revamp its corporate governance structure.
Elliott Advisors, a unit of Elliot Management, sent shock waves through the Korean stock market on April 4 by revealing that it holds more than US$1 billion worth of shares in the Korean auto group’s key affiliates.
While welcoming Hyudai Motor Group’s plan for governance reform, Elliott said in a statement that “more needs to be done to benefit the companies and stakeholders.”
The fund, however, stopped short of making detailed demands, leaving many wondering what its motives are.
Elliott called for a “more detailed roadmap” on how the Korean automotive group will “improve corporate governance, optimize balance sheets, and enhance capital returns" at its three key units -- Hyundai Mobis, Hyundai Motor and Kia Motors.
Some analysts suggest that Elliot's ultimate goal is to achieve capital gains by raising the stock prices of the Hyundai units.
They note that Elliot owns only a 1.4 percent stake in the affiliates, a portion so small for it to pursue a strategy of intervening in the management of the companies to improve their performance.
In their view, Elliot is more likely to demand an increase in dividends or share price stimulus measures.
They note that the governance reform plan announced by Hyundai Motor Group lacked a dividend policy and a future vision that could boost the stock prices. This may be acceptable to the majority shareholders but not so to shareholders who invested in the companies to earn profits.
"Hyundai Motor has not been able to give profits to both minority shareholders and foreign investors as its stock price has not risen for the past five years," said Koh Tae-bong, a researcher at HI Investment and Securities. "While Elliot is championing shareholder activism, its ultimate goal is to gain profits."
Koh noted that Elliot’s challenge would put big pressure on the Korean automotive group as the combined foreign shareholders’ stake exceeds 40 percent.
Some analysts suggest that Elliot’s main target is Hyundai Motor, not Hyundai Mobis. "I think Elliot is eying Hyundai's technology. Even though it mentioned Hyundai Mobis, it is more interested in Hyundai Motor," said Lee Sang-jin, an advisor at Shinyoung Asset Management. "Hyundai's electric car technology is highly regarded overseas, so Elliot has started to indirectly interfere in Hyundai Motor through Hyundai Mobis."
Meanwhile, the stock prices of the three Hyundai Motor Group affiliates continued to rise for three consecutive trading days on the day. Hyundai Motor gained 2.96 percent to 165,500 won (US$148), Kia Motors rose 2.52 percent to 32,550 won (US$29), and Hyundai Mobis closed at 264,500 won (US$238) with a 3.52-percent rise. Foreign investors bought Hyundai Motor stocks worth 27.9 billion won (US$25 million), Kia Motors stocks worth 12.193 billion won (US$11 million) and Hyundai Mobis stocks worth 22.924 billion won (US$20 million), respectively.