September 7, 2018 / 5:46 AM / 2 months ago

Breakingviews - Elliott's new Hyundai push will be hard to ignore

Employees of Hyundai Motor walk past the company's logo after the company's New Year ceremony in Seoul, South Korea, January 2, 2018. REUTERS/Kim Hong-Ji

HONG KONG (Reuters Breakingviews) - Elliott Management is running out of patience with Hyundai. The U.S. hedge-fund giant says the South Korean conglomerate is not making enough progress with its long-awaited overhaul. The complaint looks justified: the sprawling group has yet to follow up after investors nixed a $9 billion plan in May. With regulators stepping up pressure to reform, it may not be able to stall much longer.

Four months ago, Paul Singer’s tenacious investment outfit scored a rare victory against the autos-to-steel empire controlled by the Chung family. Opposition from Elliott, plus proxy advisor groups Glass Lewis and Institutional Shareholder Services, forced the broader Hyundai Motor Group to hit the brakes on a tortuous restructuring. The laudable aim was to simplify a complex ownership structure, yet the blueprint offered controversial terms to outside shareholders.

Now, Elliott is on the offensive again. On Friday, it released letters sent privately last month to three key Hyundai companies. All lament what it calls a lack of communication and engagement with investors. Singer’s fund is urging the group to improve shareholder returns, strengthen the board and form a committee to review restructuring options. It also sketches out a suggested refit scheme that involves splitting car-parts maker Hyundai Mobis, and then streamlining overall ownership.

The activist’s frustration is understandable. Hyundai has yet to deliver a revamped plan promised months ago: it says it is focused on operational issues and will update shareholders in due course. But outsiders have no visibility on what to expect next. Of course, Hyundai may be talking to individual investors - but the lack of public engagement strengthens Elliott’s point. Shares of key Hyundai affiliates all rose on the prospects of a fresh game plan.

Moreover, South Korea’s regulators are watching. The country’s competition watchdog last month unveiled new antitrust rules aimed at curbing the complex circular shareholdings used by family-run conglomerates including Hyundai and Samsung. Unpicking this Gordian knot will take time, but Hyundai may not have the luxury to drag its feet any longer. 

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