Elliott Vows to Vote against Hyundai Motor's Reorganization Plan

US-based hedge fund Elliott Management is stepping up pressure on the Hyundai Motor Group again, reaffirming its position to vote against the auto giant's corporate governance reform plan.

"We will vote against the Hyundai Motor Group's reorganization plan at its general shareholders' meeting scheduled for May 29," Elliott stated in a press release on May 11. "We recommended other shareholders to join us."

In addition, Elliott claimed, “The corporate governance reform plan is based on a wrong premise.” As reasons for its judgment, it cited a lack of reasonable business logic, unfair conditions for a merger for all shareholders, a lack of comprehensive measures for undervaluation and a lack of measures for an improvement in the corporate management structure as problems.

With respect to the fact that Hyundai Motor announced a plan to repurchase and cancel some of its treasury stocks, Elliott said, "These changes are positive but no more than formal measures." "We must take drastic measures to deal with fundamental problems that have caused the poor performances of Hyundai Mobis, Hyundai Motor and Kia Motors and the share price undervaluation," Elliott stressed.

At the same time, the activist hedge fund called for the adoption of a comprehensive and sustainable corporate structure including rational capital management and shareholder return policies, and the highest level of board composition.

Earlier, on April 23, Elliott officially clarified its position to oppose Hyundai's corporate restructuring plan while announcing the "Accelerate Hyundai Proposals." At the time, Elliott argued that Hyundai's reform plan was based on a wrong premise, lacked reasonable business logic and failed to suggest fair merger conditions to all shareholders.

Elliott demanded additional measures for the interest of shareholders in an announcement on April 4 that the hedge fund was holding common stocks of three affiliates of the Hyundai Motor Group amounting to US$1 billion.

Under the circumstances, Hyundai Motor vice chairman Chung Eui-sun said that the group would gain nothing in terms of securing its future competitiveness if it followed Elliot's demand to convert the Hyundai Motor Group into a holding company structure .

His stance is that the Hyundai Motor Group’s transformation into a holding company will make it difficult to acquire IT-related companies through M&A deals at a time when cooperation and integration with IT companies has become essential to the development and mass-production of autonomous vehicles including connected cars.

At an event held at the group's Open Innovation Center that opened in Seoul recently, Chung emphasized that the group's restructuring strategy was desinged to secure future growth engines. In particular, he noted that Elliott's request to convert the Hyundai Motor Group into a holding company was a proposal without benefit when considering the characteristics of the group and the trend in the future car market.

"Although we cannot disclose concrete details, we are currently reviewing strategic M&As with four to five companies in the automobile electronic device sector," Chung said.

Under the current law, if a company is converted into a holding company, it is prohibited from mobilizing its affiliates for joint investment . As Hyundai Motor Group is focusing on future cars such as autonomous vehicles and hydrogen electric vehicles, some analysts say a switch to a holding company would do more harm than good.

Chung's disclosure of the plan for strategic M&As is seen as a signal that the group would not accept the proposal from Elliott.

Chung picked Germany’s Bosch, Japan’s Denso and the US’s Delphi as role models for Hyundai Mobis, which will become a de fact holding company of the auto group if the restructuring scheme is implemented as planned.

Among the role models, Delphi was divided last December into Aptiv, which engages in the active safety business including a self driving system, and Delphi Technology, whose business areas include powertrains and automotive electronics. The move laid the foundation for enabling Delphi to focus more on autonomous driving. Spin-off policies are becoming strategic choices of global auto parts companies going ahead with the development of future cars.