Hyundai Motor Group vice chairman Chung Eui-sun has been spearheading the group’s push for governance reform. Although he has thus far focused on his role as vice chairman, he is expected to lead the auto giant from the front lines in place of his father and group chairman Chung Mong-koo from now on.
The vice chairman released a statement on May 21, saying that he would work on a new governance reform plan. Many in the industry were surprised at the statement, which was issued in his own name, as it was the first time the vice chairman came forward to show his stance on a major issue related to the group.
The junior Chung is expected to lead preparations for a new governance reform plan. The main goal of the plan is to stop circular equity arrangements among group affiliates and strengthen owner family’s control of the group.
The group examined more than 40 scenarios before finalizing the aborted reform plan. In the statement, the vice chairman remarked that he would improve the previous plan to raise the group’s competitiveness and enterprise value.
According to industry sources, the group is predicted to study three scenarios. The first one is to recalculate the swap ratio for the merger of the Hyundai Mobis’s module and after-sales parts units and Hyundai Glovis. The second is to merge the spun-off units of Hyundai Mobis with Hyundai Glovis after listing them for market valuation. Adopting a holding company structure, which has been demanded by Elliott Management Corporation is the third possible scenario.
The ratio recalculation is the most possible scenario as of now. Previously, the Hyundai Motor Group set the swap ratio for Hyundai Mobis and Hyundai Glovis at 6:4, but proxy adviser Institutional Shareholder Services (ISS) mentioned that 7:3 was more appropriate. It said the value of the spun-off Hyundai Mobis units should have been more highly assessed in view of their profitability.
The decision is up to the vice chairman in the end. The higher the spun-off Hyundai Mobis units is valued, the less Hyundai Glovis shareholders can gain. The vice chairman is the largest shareholder in Hyundai Glovis who owns 23.29% of the company.
According to stock market analysts, a merger between the spun-off Hyundai Mobis units and Hyundai Glovis based on the existing ratio leads to a profit of approximately one trillion won (US$900 million) on the part of Hyundai Glovis shareholders. If the ratio is recalculated, the vice chairman could lose a profit of about 200 billion won (US$180 million). But this would highlight his intention to put minority shareholders’ interests first.
“The vice chairman gave up the previous plan not only because Elliott Management criticized it but also because it could not satisfy market participants,” said a local stock market analyst, adding, “The new plan cannot but fail again if it fails to win over major advisory firms.” A high-ranking executive mentioned, “The Hyundai Motor Group’s governance reform has to do with groundwork for corporate succession as well as stopping circular equity investment, and the vice chairman may fall into a catch-22 situation if his Plan B also fails.”