KT&G refuses activist funds' call for ginseng biz spinoff

KT&G Corp., the world’s fifth-largest tobacco maker, on Thursday refused activist funds' requests to spin off and list its ginseng unit while planning to spend some 900 billion won ($732.7 million) this year for share buyback and dividends.

KT&G said it does not have a plan to spin off and list its wholly owned Korea Ginseng Corp. (KGC), stressing both are unlikely to benefit from such measures, which will undermine KGC’s competitiveness in other countries as it may not be able to use the parent company’s overseas networks. The two companies may lose bargaining power for sales channels such as duty free shops, KT&G said.

“The spinoff and listing are expected to have little benefit for shareholder value, we believe,” said KT&G Senior Executive Vice President Bang Kyung-man in a meeting with investors. “Recent spinoff cases have had little impact on corporate value.”

After the announcement, KT&G’s shares on Thursday morning tumbled as much as 4.7% to 91,900 won in the Seoul stock market, their lowest since Jan. 18, far underperforming a 0.7% gain in the main Kospi.

Last year, Singapore-based private equity firm Flashlight Capital Partners Pte. (FCP) proposed a number of measures, including the spinoff of KGC, to boost shareholder value and profitability. South Korea’s Anda Asset Management Co. requested similar measures.

FCP on Thursday expressed regret over KT&G’s decisions, pledging to step up its pressure on the company.

“The bad practice of ignoring shareholders will come to an end this year,” said FCP CEO Lee Sanghyun, a former head of US PE giant The Carlyle Group’s South Korean unit, in a statement.

SHARE BUYBACK, DIVIDENDS

KT&G plans to buy 300 billion won worth of treasury shares and spend 590 billion won for dividends this year with half-year dividends. The company is set to increase dividends from next year. It will announce detailed plans in the second half.

The company unveiled a sales target of 10.2 trillion won by 2027, 72.9% higher than an estimated revenue of 5.7 trillion won last year, by boosting three key sectors – heat-not-burn products, health functional foods and the global tobacco business.

It will use profits from the global tobacco business for heat-not-burn products and health functional foods with an aim to increase sales from the two growing sectors to 60% of its total revenue by 2027.

To achieve the goal, KT&G is poised to spend 3.9 trillion won on capital expenditures in five years.

Write to Jiyoon Yang at yang@hankyung.com
Jongwoo Cheon edited this article.