A debate is raging over Hyundai Motor Group's plan to spin off two business units of Hyundai Mobis and merge them with Hyundai Glovis as part of its corporate governance reform.
The Institutional Shareholder Service (ISS), the world's largest proxy advisory firm, recommended in its report on May 15 that shareholders vote against the plan, claiming that the proposal is not feasible and disadvantageous to Hyundai Mobis shareholders.
“The board has failed to articulate a clear business rationale for the transaction and has not provided any details in support of the purported synergies,” ISS said in the report. “Moreover, despite the board’s claims that the proposed restructuring plan aims to address the circular ownership issues, the transaction itself will have no impact on cross-ownership,” it added.
Earlier Glass Lewis, which constitutes the world’s top two proxy advisors along with the ISS, also advised shareholders to vote against the plan, asserting that it was based on suspicious business logic.
Glass Lewis pointed out that the split-up and merger between Hyundai Mobis and Hyundai Glovis would play out in favor of Hyundai Glovis shareholders and the owner family of Hyundai Motor Group who owned a 30% stake Hyundai Glovis.
"We believe that Hyundai Mobis will produce inappropriate results for Hyundai Mobis shareholders by transferring its highly lucrative business to Hyundai Glovis, a logistics company," Glass Lewis claimed.
Opposition was also voiced by domestic critics. "The plan to revise the governance structure, which calls for transferring Hyundai Mobis units to Hyundai Glovis, is aimed at ensuring hereditary succession from the incumbent group chairman to his son, vice chairman Chung Eui-sun," Park Sang-in, a professor at the Seoul National University Graduate School of Public Administration said in a debate held by the The Economic and Finance Center of the People's Solidarity for Participatory Democracy (PSPD).
Park also criticized the Fair Trade Commission for offering a positive evaluation of the restructuring plan on the grounds that it pursued a formal change in the governance structure.
"We positively evaluate Hyundai Motor’s voluntary dismantlement of its cross-shareholding structure," the FTC said in March shortly after the group disclosed the reform scheme.
"The Hyundai Motor Group has not fully explained the reason for the spin-off of Hyundai Mobis units. A majority of foreign proxy advisory firms are opposed to the plan because Hyundai Motor Group failed to offer a convincing explanation," lawyer Roh Jong-hwa said.
Hyundai Motor Group refuted these assertions, saying its plan would benefit Hyundai Mobis shareholders. The automaker explained that shareholders holding 100 shares of Hyundai Mobis would receive 79 shares of Hyundai Mobis and 61 shares of Hyundai Glovis. It stressed that Hyundai Mobis shareholders can see its plan is advantageous to them simply by calculating the monetary value of the shares they would get based on the current stock prices of the two companies.
Hyundai Motor also explained that Hyundai Mobis would be able to maximize its future competitiveness and corporate value. In addition, it said Hyundai Glovis's growth would also benefit Hyundai Mobis as the parts company would be put on the top rung of the revamped corporate governance ladder of Hyundai Motor Group.
"The merger ratio is similar to those of Mobis and Glovis's profit-making capacity and cash-generating capacity," Hyundai Motor said with respect to controversy over the division and merger ratios. “As the prices of the two companies set by the market are also similar to the division and merger ratios, the restructuring plan will be fairly implemented in the cause of shareholders of the two companies.”
Hyundai Mobis and Hyundai Glovis, which are expected to hold general shareholders’ meetings on December 29, have been on red alert as US activist fund Elliott Management and global voting rights advisers ISS and Glass Lewis advised shareholders to vote against the group’s reform plan.
Meanwhile, the Korea Listed Companies Association and the KOSDAQ Listed Companies Association put out a joint statement emphasizing the need for methods to protect management rights of Korean owner families.
“Some activist funds are intervening in management of domestic business groups, threatening the managerial control of their owner families. They should not be allowed to assault Korean business groups that voluntarily push for governance reform to improve transparency and raise corporate value,” the two associations said.
They defined Elliott Management’s move to block the transfer of Hyundai Mobis’s business units to Hyundai Glovis as an excessive management intervention.