The New York-based activist fund is asking the two to fork over $4.05 billion and $2.25 billion in one-off dividends, respectively. It has also nominated five director candidates to the boards of the two automotive companies.
Hyundai, Korea’s second-largest conglomerate, has flatly rejected the demands and vowed to adhere to its original plan of paying less than $1 billion in combined dividends and appointing no new board members.
Against this backdrop, the showdown between the two, which have been at odds for around a year, is highly expected to continue for the time being.
The dispute regarding dividends and directors is the second round in a battle between Hyundai and Elliott. The first finished in the latter’s favor as Elliott successfully stopped the former’s restructuring plan last year.
The restructuring would have paved the way for Executive Vice Chairman Chung Eui-sun to succeed his father Chairman Chung Mong-koo but Elliott opposed this, claiming it was against shareholders’ interests.
The outcome of Round 2 will be decided on March 22 when the two Hyundai companies hold separate shareholders’ meetings. Participants will make a decision on the proposals made by the two players.
Ahead of a possible proxy war, Elliott is trying to win the hearts and minds of other shareholders. In particular, it sent out two open letters this week to rally support.
“Hyundai Motor is severely overcapitalized as compared to peers. Maintaining the excess capitalization comes at a real cost to shareholders, with the company’s return on equity deteriorating to an industry low of 2.2 percent in 2018,” it said in a Feb. 28 letter to Hyundai Motor shareholders.
The hedge fund also criticized the carmaker’s newly-announced plan to spend around $40 billion over the next five years in research.
“We also recognize the company’s need to invest in R&D. However, we remain unconvinced that management’s investment roadmap detailing 45 trillion won of spend over the next five years is prudent planning,” it said.
In a Feb. 27 letter, it argued that Hyundai Mobis piles up too much cashes and Korea’s top auto part suppliers failed to manage them properly. Hence, the fund, which is under the helm of billionaire investor Paul Singer, demanded that Hyundai Mobis return a good part of them back to shareholders.
“Mobis has been very overcapitalized for too long, dragging down returns while allowing for the funding of value-destructive non-core projects that further damage company performance and reputation,” it said.
“The company’s overcapitalization has dragged down returns, which stand at an industry low of 6.3 percent return on equity. Concerns continue to be raised by shareholders that any remaining excess capital will be used to fund non-core projects, as has happened repeatedly in the past.”
In response, both Hyundai Motor and Hyundai Mobis claimed that they cannot pay out dividends that much, which is far bigger than their 2018 profits. Instead, Hyundai Mobis announced a $2.5 billion shareholder return package over the next three years.
In its November open letter last year, Elliott said that it holds more than 2.5 percent common stock in Hyundai Mobis, 3 percent in Hyundai Motor and 2.1 percent in Kia Motors. Hyundai Motor is the country’s largest automaker and Kia Motors is No. 2.