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September 22, 2018

Hyundai’s plan B to include new merger ratio, more shareholder benefits

PUBLISHED : May 23, 2018 - 17:01

UPDATED : May 23, 2018 - 17:38

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[THE INVESTOR] Hyundai Motor Group, which scrapped its original restructuring plan on strong opposition from minority shareholders led by Elliott Management, will likely soon come up with a plan B, according to both insiders and industry sources on May 23. 

“Without securing sufficient trust and support of shareholders and the market it is difficult to effectively carry out any kind of restructuring,” Hyundai Motor Vice Chairman Chung Eui-sun said. “We will improve the restructuring plan by collecting ideas and evaluations to improve competitiveness and corporate governance.”

The rare remarks from the Hyundai heir-apparent came immediately after the auto giant’s decision to drop its plans for a spin-off merger of its two affiliates Mobis and Glovis on May 21, citing “uncertainty” of shareholders’ support. The automaker, however, didn’t elaborate when it will finalize the updated plan. 




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Market watchers say the auto giant will come up with revamped plan soon, considering the government’s push to correct complex governance structure at major conglomerates by the year-end, coupled with heightened market interest at the automaker’s restructuring move. 

The new plan will obviously entail additional shareholder benefits, such as dividend payments and share buybacks. Meanwhile, it will keep the original scenario of spinning off Mobis’ lucrative module and after-service parts business and merging it with logistics unit Glovis, while revising the swap ratio of the merger, which has been a point of contention among shareholders. 

“Hyundai’s updated proposal will stick to the original plan while modifying the merger ratio between Glovis and Mobis, while strengthening the shareholder returns policy,” said Kang Seong-jin, analyst from KB Securities. “As for adopting a holding firm structure, it would be difficult due to problems considering operating financial affiliates and the share ratio.”

Samsung Securities analyst Yim Eun-young projected Hyundai will likely come up with a new plan within two to three months, considering the auto giant’s intention to complete the restructuring within this year. 

“The market was unsatisfied by both the restructuring plan and the shareholder returns program,” said Kim Pyeong-mo, analyst at DB Securities. “We expect the new reshuffle plan will certainly be favorable to Mobis shareholders and boost its shareholder returns.”

The auto giant in March had announced the spin-off merger plan as part of the corporate governance reshuffle, following persistent calls from the government to change its tangled circular shareholding structure that gives too much power to the controlling Chung family. 

Following the announcement, US hedge fund Elliott -- which holds more than US$1 billion stake in three key units of the auto group -- opposed the plan, while major proxy advisors including Glass Lewis, Institutional Shareholder Services and Korea Corporate Governance Service, also joined the campaign, citing the unfair merger ratio that hurts shareholders. 

In the initial plan, Mobis and Glovis’ swap ratio was set at 6:4. But proxy advisors have recommended 7:3, saying Mobis’ value after being spun off needs to be improved.

By Ahn Sung-mi (sahn@heraldcorp.com)

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