A 'Shareholder-friendly' Policy
South Korean auto parts maker Hyundai Mobis Co. announced it would pursue “shareholder-friendly” policies and buy back and cancel around 600 billion won (US$557.36 million) in treasury shares over the next three years. The announcement came days after affiliate Hyundai Motor announced its first stock cancellation in 14 years.
Hyundai Mobis said it has decided to buy back and cancel a total of 600 billion won (US$557.36 million) of treasury shares in the next three years at the ad hoc board meeting on May 2. The company will cancel 2.04 million of common shares, the entire stake currently held, within the next year and will additionally buy back and cancel 187.5 billion won (US$174.18 million) worth of common shares over three years from 2019, 62.5 billion won (US$58.06 million) a year.
According to Hyundai Mobis, its treasury shares will decrease from 2.04 million to 1.61 million shares based on the spinoff and merger ratio between Hyundai Mobis and Hyundai Glovis at 0.79:0.21. These are worth around 400 billion won (US$371.57 million) at market value based on the closing stock price of 248,000 won (US$230.38) on April 30. In addition, the company will buy back and cancel an additional 760,000 common stocks worth 187.5 billion won (US$174.18 million) over the next three year, adding up to 2.37 million of treasury shares worth 600 billion won (US$557.36 million). The figure accounts for 3.1 percent of the total amount of issued stocks after the spinoff. Accordingly, the company’s earnings per share (EPS) and dividend per share (DPS) will improve by 3.1 percent, respectively.
When Hyundai Mobis cancels its treasury stocks as scheduled, it will be the first treasury stock cancellation in 16 years after 850,000 shares in 2003. The company canceled only 21,484 preferred stocks in 2014. An official from Hyundai Mobis said, “As the total amount of issued stocks has declined after the spin-off, the fall in dividend payable will be used to buy back and cancel treasury shares in order to enhance shareholder value. We will immediately carry out it from next year and reconsider it after three years.”
Hyundai Mobis also said it would start paying dividends mid-year, rather than just annually from next year in its bid to improve cash flows of shareholders. In short, the company will implement an interim dividend system by paying out approximately one-third of the yearly dividend amount in the middle of the year.
In February, Hyundai Mobis said it would return profits to shareholders based on its dividend policy of 20 to 40 percent of free cash flow and provide reasons when there is a significant increase or decrease in dividends due to major business environment changes in the future.
Meanwhile, U.S. activist fund Elliott Management recently showed opposition to the spin-off and merger between Hyundai Mobis and Hyundai Glovis and requested Hyundai Mobis and Hyundai Motor to cancel treasury shares and increase the dividend payout rates to 40 to 50 percent of net profits through the proposal sent to parent Hyundai Motor Group.
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