US hedge fund Whitebox Advisors opposes LG’s planned spin-off

Whitebox Advisors LLC, a US-based hedge fund, opposes a planned spin-off by South Korea’s LG Corp., saying the plan sacrifices minority shareholder return in order to “resolve a family succession issue.”

In a letter sent to LG’s board of directors on Dec. 14, Whitebox Advisors said the plan, approved by the board in November, was motivated by a desire to help a member of the founding family start his own business rather than to create value for shareholders.

“The decision to proceed with the spin-off reflects poorly on corporate governance,” the hedge fund said in the letter. “We are deeply dismayed that the purported rationale for this transaction is to support Koo Bon-joon in developing his own business group, like others in his family.”

LG Group, Korea’s fourth-largest conglomerate, announced on Nov. 26 that it will split off its trading arm LG International Corp. and four other non-core units into a new business group to be controlled by the group chairman’s uncle Koo Bon-joon.

Koo, who ran LG Electronics Inc. for six years from 2010 and was vice-chairman of LG Corp. for three years after that, is a grandson of LG Group founder Koo In-hwoi and the third son of Koo Ja-kyung, the late honorary chairman. Koo Bon-joon is the second-largest shareholder of LG Corp. with a 7.72% stake.

Whitebox Advisors, which has $5.5 billion under management, called for LG to stop its current plans and propose a new spin-off that maximizes value for all shareholders.

CAMPAIGN TO REJECT SPIN-OFF AT AGM

The fund also hinted at launching a campaign against the LG plan, urging other shareholders to assess the transaction and “act accordingly” at LG Corp.’s annual general shareholder meeting scheduled for late February.

That LG – the "gentleman of Korea" with the reputation for the best corporate governance among peers – has proposed a transaction that appears to prioritize family over minority shareholders is a reason why the "Korean Discount" persists, said Whitebox.

The passage of the spin-off plan requires approval by more than two-thirds of shareholders in attendance at the AGM and by holders of shares amounting to one-third of those outstanding. LG Group’s families and related parties own a combined 46% of LG Corp., according to public disclosure. The National Pension Service has 7.64%.

Whitebox, whose equity strategy is run by Simon Waxley, a former managing director at the activist hedge fund Elliott Management, is known to have held about a 1% stake in the past three years. Foreign investors, including Whitebox, own a combined 34.7%.

LG did not have an immediate comment on the US hedge fund’s letter, but earlier said the spin-off would increase shareholder value by allowing the company to focus on other areas of its business.

ACTIVISTS VS CONGLOMERATE RESTRUCTURING

Activists have often taken issue with group-wide restructuring deals at Korea’s big conglomerates, saying such transactions benefit the controlling family members at the expense of minority shareholders’ interests.

Back in 2018, US hedge fund Elliott Management called on the Hyundai Motor Group to convert into a holding company structure by combining Hyundai Motor Co. with Hyundai Mobis Co. Elliott’s calls, however, were rejected at general shareholder meetings of Hyundai Motor and Mobis in March 2019.

In 2015, the US hedge fund sought to block the merger between Samsung Corp. and Cheil Industries Ind. and in 2016 pressured Samsung Electronics Co. to convert into a holding company.

Write to Chang-jae Yoo and Jun-ho Cha at yoocool@hankyung.com
In-Soo Nam edited this article.