KT&G eyes overseas M&A after rejecting activist fund's offer

KT&G Corp., South Korea’s dominant tobacco and ginseng producer, is seeking to acquire a Japanese ginseng company after dismissing a 1.9-trillion-won ($1.3 billion) buyout offer from an activist fund for its wholly owned unit Korea Ginseng Corp.

KT&G has recently sent requests for proposal to major accounting firms and investment banks to search for potential acquisition targets among ginseng and red ginseng suppliers in Japan, according to investment banking sources on Friday.

It did not specify a target company. Given the relatively small size of Japanese ginseng producers, investment bankers estimate any deal KT&G could strike would be valued at between 100 billion and 200 billion won ($70 million-140 million).

The move follows the Korean tobacco manufacturer’s rejection of a 1.9-trillion won offer from Singapore-based Flashlight Capital Partners for Korea Ginseng last year.

Since 2022, Flashlight has been advocating for a horizontal spin-off and stock market listing of the cash cow, arguing KT&G’s control has weighed down the latter's valuation.

In an immediate rejection of the buyout proposal, KT&G stated in a letter that Korea Ginseng was not undervalued and separating it would weaken the company's business synergy. It also said it would grow its ginseng business into a global brand.

Last year, KT&G spent 9 billion won to acquire Centralpharm Co., a Korean manufacturer of health functional foods such as probiotics and vitamins.

Korea Ginseng, better known for its signature Jung Kwan Jang brand, is the country’s largest supplier of red ginseng products, popular health supplements.

In 2024, it earned 66.7 billion won in operating profit on sales of 1.1 trillion won.

Its parent company KT&G has frequently been targeted by activist funds calling for governance reform and shareholder-friendly measures.

In 2006, US corporate raider Carl Icahn made an unsolicited takeover bid for KT&G, jointly with fellow activist Warren Lichtenstein, founder and CEO of the US-based Steel Partners.

Although the bid fell through, it prompted KT&G to pledge up to $2.9 billion in shareholder returns by 2008, resulting in substantial gains for the activist investors.

Write to Jun-Ho Cha at chacha@hankyung.com
 

Yeonhee Kim edited this article.