KT&G enlists Goldman Sachs to cope with shareholder activism

KT&G Corp., the world’s fifth-largest tobacco maker, appointed Goldman Sachs as an advisor to improve corporate governance after a Singaporean private equity firm urged the firm to take steps to boost shareholder value and profitability, industry sources said.

The South Korean company had received offers on advisory services from major global investment banks including Goldman Sachs since Flashlight Capital Partners Pte. (FCP) proposed measures such as the spin-off of its ginseng business, according to IB industry sources in Seoul on Monday.

“KT&G chose Goldman Sachs as management aims to take the lead in shareholder-friendly measures including the reform of its corporate governance,” one of the sources said.

Earlier this month, the company appointed the country’s top-tier law firm Kim & Chang to deal with FCP’s request.

GOLDMAN SACHS MAY AIM TO MANAGE POTENTIAL GINSENG UNIT IPO

On Oct. 26, the private equity firm sent a letter to KT&G’s key shareholders and board of directors, asking the company to spin off and list Korea Ginseng Corp., set up a mid- to long-term plan to raise sales of its heat-not-burn products, divest non-core assets, return to shareholders more than 6 trillion won ($4.5 billion) in surplus cash and pay stock options to its executives.

The management was known to take the spin-off of the ginseng business and stock options for executives the most seriously, according to IB industry sources.

Goldman Sachs was expected to help KT&G set up countermeasures to the spin-off request, the sources said.

“Goldman Sachs may be able to advise with a condition of the management of Korea Ginseng Corp.’s listing in the future,” said one of the sources.

KT&G pledged to raise sales of the lil, its heat-not-burn product, aiming for its sales to account for more than half of the company's total revenue, earlier this month when it announced its third-quarter earnings.

It also unveiled plans to buy back 350 billion won of its own shares and increase dividends.

Write to Dong-Hui Park at donghuip@hankyung.com
Jongwoo Cheon edited this article.