Whitebox Says Spin-off Plan Harms Minority Shareholders
U.S.-based hedge fund Whitebox Advisors LLC has publicly opposed LG Corp.’s spin-off plan immediately after the National Assembly passed Commercial Act and Monopoly Regulation and Fair Trade Act amendments.
“The plan sacrifices minority shareholder return in order to resolve a family succession issue,” it said, adding, “The spin-off does nothing to address LG’s most pressing issue, which is the unprecedented discount at which the company trades relative to its assets and, accordingly, inferior return to shareholders.”
LG Group announced last month that it would spin off five affiliates, including LG International and LG Hausys, into a new holding company next year. “After the spin-off, we will be able to further concentrate our resources on our electronics, chemical and telecom business units, which will lead to shareholder value enhancement, more detailed growth strategies and discount resolution,” it said.
According to those in the industry, what Whitebox is actually focusing on is shareholder-friendly policies such as share buyback and special dividend rather than objection to the spin-off plan, and it may join forces with other foreign funds although its current shareholding is very small. “LG Corp.’s current cash assets are approximately 1.8 trillion won and the spin-off will result in a 9 percent decrease in assets,” it mentioned.
The LG Group owner family currently owns 46.6 percent of LG Corp. whereas Whitebox Advisors’ shareholding in the corporation is 0.6 percent. Although the latter is far from enough to block the passage of the plan at a shareholder meeting, Whitebox can file a damage suit against subsidiary directors such as those in LG Electronics and LG Chem if its shareholding has been 0.5 percent or more for at least six months.
Whitebox Advisors’ assets under management are US$5.5 billion and its head is Simon Waxley from Elliott Management Corporation, which raised its voice against Samsung C&T in 2015 and Hyundai Motor Group in 2018. It is said that Whitebox may increase its shareholding in an unexpected way like Elliott did five years ago.
At that time, Elliott increased its Samsung C&T shareholding to 7.1 percent, without any public announcement, by total return swap (TRS) via a foreign securities company. In TRS, an investor asks a securities company to buy shares on behalf, the former is responsible for gains and losses, the latter is responsible for public announcement, and the investor is free from the duty of notice even with a shareholding of 5 percent or more.
According to experts, the fact that the objection immediately followed the passage of the amendments is full of suggestions. “Similar cases will be found over and over down the road and the government has to provide domestic enterprises with defensive measures such as poison pill and dual class stock,” they said.