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Shareholder activism

US hedge fund Whitebox Advisors says to vote against LG’s planned spin-off

By Feb 25, 2021 (Gmt+09:00)

US hedge fund Whitebox Advisors says to vote against LG’s planned spin-off


US-based hedge fund Whitebox Advisors LLC plans to vote against the proposed spin-off of South Korea’s LG Corp. at the upcoming general meeting of shareholders in March, according to the hedge fund's letter to LG shareholders on Feb. 24.

Last November, LG Group, Korea’s fourth-largest conglomerate, announced plans to 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.

Following the announcement, Whitebox Advisors sent a letter to LG's board of directors in December saying that the plan was motivated by a desire to help a member of the founding family start his own business rather than create value for shareholders.

According to Whitebox, the spin-off does not address LG's most urgent issue -- the company's trading price discount relative to its net asset value. Rather than considering potential alternatives, the Korean conglomerate appears willing to "deprive shareholders of meaningful value" by sacrificing minority shareholder returns to "resolve a family succession issue."

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

Whitebox noted that the spin-off plan "undermines LG's credibility and market position by revealing an insular corporate governance model that treats minority shareholders like second-class citizens."

The activist fund also urged LG shareholders to protect the value of their investments by casting a vote against the proposed spin-off during the annual general meeting slated for Mar. 26.

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. According to public disclosure, LG Group families and related parties own a combined 46% of LG Corp. 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%.

Write to Chang-jae Yoo at yoocool@hankyung.com

Danbee Lee edited this article.

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