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Shareholder activism

Proxy advisers ISS, Glass Lewis urge LG shareholders to reject spin-off plan

By Mar 15, 2021 (Gmt+09:00)

Proxy advisers ISS, Glass Lewis urge LG shareholders to reject spin-off plan

Proxy advisers Institutional Shareholder Services Inc. (ISS) and Glass Lewis & Co. have urged shareholders of LG Corp. to vote against the South Korean company's plan to spin off five affiliates during its annual general meeting slated for Mar. 26.

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 Koo Bon-joon, uncle of group Chairman Koo Kwang-mo.

The four other units are LG Hausys Ltd., LG MMA, Silicon Works and Pantos Logistics.

LG Corp.’s board of directors has approved the plan to regroup the five units into a new entity, tentatively named LX Holdings, set to launch in May of this year.

The chairman's uncle, Koo Bon-joon, 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 Bon-joon is the second-largest shareholder of LG Corp. with a 7.72% stake.

SPIN-OFF ALLOWS LG TO FOCUS ON OTHER KEY BUSINESSES

LG Group has said the spin-off is designed to increase shareholder value by allowing LG Corp. to focus on other areas of its business such as electronics, chemicals and telecommunications services. But some activists and foreign investors said the plan was motivated by LG’s desire to help a member of the founding family start his own business rather than create value for shareholders.

US-based hedge fund Whitebox Advisors LLC, which owns roughly 1% of LG Corp., publicly opposed the plan in February and has mounted a campaign to stop it, saying the spin-off would hurt minority shareholders while aiming to resolve a family succession issue.

ISS said in a statement this week that “it appears that the proposed transaction lacks a compelling business justification and does not address the most pressing issues related to capital management and the enormous discount to NAV (net asset value) at which shares of the parent company trade."

Separately, Glass Lewis cited "inadequate rationale" in recommending against the deal in its report, published late on Friday.

CLOUT OVER INSTITUTIONAL INVESTORS

ISS and Glass Lewis are the world’s two leading proxy advisory firms for hedge funds, mutual funds and other investment organizations. They often exercise their clout over institutional investors in major corporate decisions.

Simon Waxley, head of equity at Whitebox, said it is “pleased” the two US proxy advisers recommended that shareholders vote against the spin-off plan.

“Whitebox wants to see LG transform into a stronger, well-governed conglomerate that delivers enduring value for all shareholders and stakeholders,” he said.

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 holds 7.81%.

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

In-Soo Nam edited this article.

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