US hedge fund activist Elliott said Friday that it will vote against Hyundai Motor Group‘s corporate governance reform scheme, raising concerns over the fund agitating foreign shareholders who hold nearly half of the shares in the group’s affiliates ahead of a major vote planned later this month.

The nation’s second-largest conglomerate plans to simplify its complex ownership structure. In March, the group said it will spin off Hyundai Mobis’ lucrative after-sales and module division and merge them with Hyundai Glovis. The plan will be put to a shareholder vote on May 29.




Finalizing its opposition, Elliott said in a statement that Hyundai’s plan lacks a business rationale, is unfair to all shareholders and fails to improve shareholder returns.

The plan was “based on flawed assumptions” and played down Hyundai’s recent efforts of buying back and cancelling shares, saying they were not enough.

“More significant measures are needed to address the long-unresolved issues at the group that have led to significant valuation discounts and underperformance at Hyundai Mobis, Hyundai Motor and Kia,” Elliott said, urging the company’s shareholders to vote against the plan too.

In response, Hyundai Motor Group said it is difficult to take Elliott’s proposal saying that such an idea of adopting a holding company structure hurts the company’s business competitiveness.

The US fund raising the red flag was widely seen as adding pressure on the carmaker and also raising tension in the market which already went through Elliott’s aggressive actions on Korean chaebol and is aware of its impact.

On the same day, Elliott demanded the South Korean government to pay 710 billion won ($664 million) in compensation, claiming that an approval by the state-run pension fund on the 2015 merger between two Samsung affiliates has triggered a substantial damage to investors.

Hostile demands appear to have been sent to Hyundai and the government at the same time to maximize the pressure on the carmaker. Elliott holds around 1.5 percent in each affiliates -- Hyundai Motor, Kia and Mobis. The fund‘s ownership in Hyundai is valued at $1 billion.

Despite its relatively insignificant portion of shares, insiders inclined to the interests of Hyundai Motor Group expressed concerns over Elliott‘s attempt to win other shareholders -- including foreign institutional investors and the National Pension Fund -- over its court.

Local experts, however, played down Elliott’s move, saying that Hyundai‘s reform plan is different from Samsung case three years ago.

“I don’t think major shareholders like NPS will be swayed by Elliott and move in favor of the fund‘s plan,“  said Park Ju-gun, head of CEOScore, a local corporate tracker. “Elliott’s proposal of adopting a holding company structure is not advantageous to all, but is designed to make profit to itself only,” he said.

Last month, the fund demanded the group merge Hyundai Motor and Hyundai Mobis and turn them into a holding company. It also urged to cancel current and future treasury shares, pay 50 percent of net income in dividends, and appoint three new independent board members.

By Cho Chung-un (christory@heradcorp.com)