KT&G taps top-tier law firm to defend itself against shareholder activism

KT&G Corp., the world’s fifth-largest tobacco maker, has appointed South Korea’s top-tier law firm Kim & Chang to take action against shareholder activism. The Korean tobacco company is expected to announce on Nov. 4 some measures to increase shareholder value, such as an expansion of dividends, alongside its third-quarter earnings.   

Last month, Singaporean private equity firm Flashlight Capital Partners Pte. (FCP) proposed several measures to bolster shareholder value and profitability to KT&G, including the spin-off the Korean tobacco firm’s ginseng affiliate, Korea Ginseng Corporation (KGC). The appointment of the law firm is KT&G’s first action taken since the shareholder proposal.

Korean investment firm Anda Asset Management also announced a shareholder proposal on Nov. 2, suggesting KT&G spin off the ginseng unit and rebrand it as an energy drink company targeting young consumers worldwide.

The combined KT&G stake that FCP and Anda own is a little more than 1%, according to investment banking sources. KT&G will take time to consider its countermeasures as the shareholding percentage doesn’t threaten management rights at the moment, sources said.

There is little chance that the relationship between FCP and KT&G will become hostile, market insiders said.

The Singaporean PE firm and the tobacco company have been collaborative with each other, continuing talks since April on five proposals: to spin off the ginseng business; expand its e-cigarette Lil into the global market; divest non-core businesses; increase share buyback programs; and strengthen environmental, social and governance (ESG) management.

However, the two may butt heads over the makeup of KT&G’s board of directors next year.

The 2023 board of directors has the right to recommend KT&G’s new CEO, who will be inaugurated in March 2024. Market watchers say that if FCP, Anda and other shareholders are elected as board members next year, they may not recommend the reappointment of current KT&G CEO Baek Bok-in in 2024. Baek, who has served three consecutive terms as chief since 2014, is said to be aiming for a fourth term.

Write to Dong-Hui Park at donghuip@hankyung.com
Jihyun Kim edited this article.