April 24, 2018 / 3:27 AM / a month ago

Breakingviews - Hyundai agitator gets overly ambitious

HONG KONG (Reuters Breakingviews) - An insurgency effort at Hyundai is pushing for too much. U.S. hedge-fund titan Elliott Management wants a different sort of restructuring at South Korea’s second-largest chaebol, or family-owned conglomerate. Limitations on financial subsidiaries mean Hyundai may stick with its original structural overhaul.

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

Hyundai has lagged other major chaebol in scrapping the fiddly circular shareholdings that have plagued corporate Korea. Under official pressure, the controlling Chung family took a first step last month, with plans to swap two businesses owned by auto-parts manufacturer Hyundai Mobis for shares in another affiliate, Glovis. It has yet to flesh out a broader vision for the new-look Hyundai, however.

The intervention by Elliott, before shareholder votes next month, is a way of holding the family’s feet to the fire. Most of its demands, unveiled on Monday, are sensible and investor-friendly: better governance at listed units Hyundai Mobis, Hyundai Motor Co and Kia; more generous dividends; and a return of $11 billion or so of upfront cash to shareholders in Mobis and HMC.

Paul Singer’s aggressive investment outfit also argues the spinoff short-changes Mobis shareholders and makes little sense, since the company’s modules and after-sales units will end up inside a logistics company, when they more naturally belong with HMC. Instead, Elliott says Mobis and HMC should merge into a holding company in the first of several streamlining steps that would generate $1.7 billion of tax savings.

The parent company’s proposal, though, is a reasonable workaround, given restrictions on non-financial holding companies owning financial subsidiaries, like HMC’s Hyundai Capital and Hyundai Card. Perhaps the authorities will give Hyundai a waiver, as Elliott argues, at least when it comes to leasing, which obviously fits well with a carmaker. But this is hardly guaranteed, in which case further restructuring will be required.

More plausible is that Elliott is asking for more than it believes it will get: a classic negotiating tactic. The Chung family could compromise by making commitments on governance and shareholder payouts. Meanwhile, the spinoff would have a better chance of winning shareholder approval by simply sweetening the rather stingy-looking terms for Mobis shareholders. That might be enough to quiet down the backseat driver.

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