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Elliott challenges Hyundai Motor for bigger shareholder returns

US fund steps up activity in South Korea after pressuring Samsung

Elliott holds a 3% stake in Hyundai Motor as part of a $1 billion investment in three group companies.   © AP

SEOUL -- U.S. hedge fund Elliott is demanding that Hyundai Motor return 12 trillion won ($10.6 billion) to shareholders and implement sweeping reforms, the latest salvo in its campaign to force change at South Korea's largest automaker.

Elliott Management, one of the world's biggest activist funds, has written to directors of Hyundai Motor Group calling for urgent action to improve the group's corporate governance and performance.

"Hyundai Motor Group is now the only major corporate group in Korea with an unreformed legacy shareholder structure and no plan to address it," said the fund in the letter. "We believe it is imperative for the respective boards of Hyundai Motor Group to take bold and decisive action to remedy HMG's underperformance."

Elliott has said it has invested $1 billion in three Hyundai companies which own shares in each other. It holds 3% of Hyundai Motor, 2.1% in Kia Motors, Hyundai's smaller affiliate, and 2.5% in Hyundai Mobis, its auto parts subsidiary.

Elliot has since last spring been pushing for change at the Korean company, which was in May forced to withdraw a restructuring plan after opposition from the U.S. hedge fund. Elliott had argued that the restructuring did not address the group's complex structure.

The latest assault comes just a few weeks after Hyundai Motor posted one of its worst earnings reports of recent years. The Seoul-based automaker's operating profit tumbled 76% to 288.9 billion won in the third quarter from a year ago, hit by recall costs and weak currencies in emerging markets.

Elliott has been pressing Hyundai Motor to follow the example of Samsung Electronics which two years ago succumbed to pressure from the activist to diversify its board and improve shareholder returns. Samsung paid 5.8 trillion won of dividends in 2017, up 45% from the previous year, while adding a female law professor and a Korean-American businessman to its boardroom in March.

Hyundai Motor declined to comment on the letter from Elliott.

Elliott is one of a number of activists who are finding new opportunities in South Korea since the recent introduction of rules aimed at protecting the interests of minority shareholders.

"Although the country can still be a tough environment for activists, it also offers plenty of cheap stocks, and appears to have reached a turning point that could redefine shareholder engagement and open the door for more public confrontations," said Paolo Frediani, an analyst at Activist Insight.

But, a source close to Hyundai and familiar with the matter said that Elliott's demand is excessive, considering the automaker's financial ability.

"How can a company distribute most of its free cash to shareholders? That is not acceptable," said the source, asking not to be named. "Elliott seems to mobilize all of its resources to squeeze up its gains."

Elliott impressed local investors in 2015 when it attempted to block a merger between Samsung C&T and Cheil Industries, two affiliates of Samsung group. Even though the deal was passed with support from the National Pension Service and individual investors, the U.S. fund flexed its muscles by standing against the country's most powerful conglomerate.

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