Reforming Corporate Governance
The market is paying attention to the Hyundai Motor Group’s corporate governance reform plan again. Hyundai Motor Co. is expected to present a new reform plan in the third quarter at the earliest and around the end of the year at the latest.
News spread on Aug. 8 that the automotive group would spin off some divisions from Hyundai Mobis Co. and list the spun-off company on the stock market first. The stock prices of involved companies moved in different directions. The share price of Hyundai Mobis, which was forecast to have a higher corporate value after the reform, gained 2.9 percent from the previous day, closing 231,000 won (US$206.16). It surged a whopping 6 percent during the midday trading. On the other hand, the stock price of Hyundai Glovis Co. fell 4.04 percent from a day ago, as its major shareholder was seen to sell some of his stakes.
Hyundai Motor denied the news about the spin-off of some of Hyundai Mobis divisions. The group said, “It simply isn't true that Hyundai Mobis will spin off its divisions or the group is about to announce a new corporate governance reform plan.”
However, the market expects that Hyundai Motor Group will take action for corporate governance reform in the near future. The group seems to be pondering on how to ensure stable succession of managerial rights to vice chairman Chung Eui-sun while at the same time improving shareholder value.
The new corporate governance reform plan reported by a domestic media outlet focuses on spinning off Hyundai Mobis’s AS and the component module divisions and list them first. Under the plan, vice chairman Chung will secure his control over the group by selling a 10 percent stake in Hyundai Glovis and purchasing Mobis shares with the funds.
Then, the spin-off from Mobis will be merged with Glovis to improve Chung’s hold on the group. The group owner family, including vice chairman Chung and his father, group chairman Chung Mong-koo, will then exchange their stakes in the merged company with the Mobis stakes owned by Kia Motors Corp., thus completing the new corporate governance.
This scenario is similar to the one suggested by Daishin Economic Research Institute after Hyundai Motor scrapped its corporate governance reform plan on May 21. The new plan can settle controversy over the merger ratio between a spin-off from Mobis and Glovis, which was the weakest point of Hyundai Group’s initial plan. It can also end controversy by merging a spin-off from Mobis and Glovis based on the stock prices evaluated by the market.
However, the securities industry thinks that the scenario of spinning off the AS and module divisions of Hyundai Mobis is not practicable. There are three main reasons. First, value assessment problems can come up even when the spin-off from Hyundai Mobis is listed. An analyst said, “The Hyundai Motor Group could be criticized for intentionally lowering the stock price of the spin-off by listing it when the market conditions are not favorable.”
Second, vice chairman Chung would not be able to secure a large enough stake in Hyundai Mobis even when he sells some of his stakes in Hyundai Glovis due to a surge in the stock price of Hyundai Mobis. According to the analyst, Hyundai Mobis stock price could soar as it would lead all of the group’s promising future businesses, including the electric vehicle module business. The scenario could rather expose Hyundai Mobis, the group’s main business unit, to hostile merger and acquisition (M&A) forces.
Lastly, the group’s cross shareholding structure would not be completely eliminated, which is another prerequisite for corporate governance reform. KB Securities Co. pointed out that a new cross shareholding structure would be created if Kia Motors acquires a stake in Hyundai Glovis after its merger with a spin-off from Hyundai Mobis and transfers its stakes in Hyundai Mobis to the group’s owner family.
The industry believes that Hyundai Motor Group’s new corporate governance reform plan will be unveiled around the end of the year. The group hasn’t formed a well-equipped advisory group yet. The group already came up with more than 100 plans and suggested the most reasonable one in the process of announcing the first corporate governance reform plan. The problem is that any plan can satisfy both tangled cross shareholding structure and shareholders of Mobis and Glovis. An analyst from a securities firm said, “Hyundai Motor Group is taking more time to ponder and consider more complex plans because it is hard to satisfy various interested parties at the same time. The major shareholder will suffer a loss in the end but selling all the stakes in group’s subsidiaries and buying shares of Mobis is the simplest and fastest way.”