Daily Times

Hyundai Motor said on Friday it will cancel $890 million (646.05 million pounds) worth of treasury shares, its first stock cancellation in 14 years – a plan that comes amid shareholder pressure to improve returns, restructure and bounce back from dismal earnings.

The cancellation is an initial win for US hedge fund Elliott Management, the most prominent among the few activist shareholders to seek reforms at South Korea’s powerful chaebol or family-run conglomerates. But whether Hyundai will cede to its other demands is less clear.

“While this is a positive development, it falls well short of what shareholders require,” Elliott spokesman Michael O’Looney said.

Hyundai’s move shows the chaebol have become more responsive to calls for reform. They also face government pressure to improve governance as well as public anger over the perception that their growth has not sufficiently benefited smaller firms and ordinary people.

Elliott ramped up pressure on the South Korean automaker on Monday, calling for a holding company structure, the addition of three independent board members as well as a share cancellation.

“Hyundai Motor seems to be trying to reach a compromise with Elliott by accepting part of its demands,” said Kim Jin-woo, an analyst at Korea Investment & Securities.

Ahead of a shareholder vote on a reorganisation plan for the wider group next month, Hyundai said it plans to cancel 560 billion won of existing treasury shares on July 27, and will buy back and cancel another 400 billion won worth of stock.

“Hyundai Motor has and will continue to focus on improving shareholder value. Today’s announcement is part of a long consideration process and displays our efforts to honor this commitment,” it said in a statement.

The cancellation came on the heels of Hyundai’s quarterly profit halving to its lowest level in nearly six years, hurt by tepid sales in the United States and China.

The action, however, drew the ire of Hyundai’s labour union which said that at a time of a severe decline in earnings, management was seeking to appease just one shareholder with funds that had been earned by workers.

“The union and 51,000 domestic workers could not be more disappointed by the company’s humiliating action in yielding to Elliott’s demand,” it said.

Watchdog Criticises Elliot

Elliott holds shares totalling more than $1 billion in Hyundai Motor, Kia Motors and Hyundai Mobis, which is set to be de facto holding firm of group.

The wider Hyundai group last month unveiled some reform measures aimed at simplifying its complex ownership structure, but Elliott countered they were insufficient to address the discount in Hyundai’s shares compared to overseas automakers.

“The share cancellation plan will help placate Elliott and other investors, and raise the chance of Hyundai’s reorganisation plan getting shareholder approval in May,” said Ko Tae-bong, an analyst at Hi Investment & Securities.

Published in Daily Times, April 29^th 2018.