KT&G potential target of aggressive activist shareholder

KT&G Corp., the world’s fifth-largest tobacco maker, is likely to face a tougher battle against activist shareholders as an aggressive hedge fund may join its peers in calling for measures to boost shareholder value.

Oasis Management Co., which has been rattling the Japanese corporate sector with its shareholder activism, currently holds about a 1.5% stake in the leading South Korean tobacco company through a special purpose vehicle (SPV), according to investment banking industry sources in Seoul on Wednesday.

KT&G was reportedly Oasis’ first investment in South Korea. The private investment company focusing on Asia has recently opened a website in the Korean language, a move seen for preparation of shareholder activism in the country, those sources said.

“It is likely to take a full-fledge step as an activist investor,” said one of the sources.

KT&G has already been under attack from activist funds such as Singapore-based private equity firm Flashlight Capital Partners Pte. (FCP) and South Korea’s Anda Asset Management. They requested the company to take measures including a spinoff of its ginseng unit to boost shareholder value and profitability.

AGGRESSIVE SHAREHOLDER ACTIVISM IN JAPAN

Oasis, founded in 2002 by Seth Fischer, a former portfolio manager at Highbridge Capital Management LLC, was in the spotlight as it was known to have led shareholder activism in Japan, investment banking industry sources said.

Oasis surprised the country in 2019 when it requested Tokyo Dome Corp., the operator of an iconic indoor baseball stadium in the capital, to improve its management.

Many Japanese, aware of who was managing the Tokyo Dome and surrounding facilities, were surprised by Oasis’ requests, Japanese media said at that time.

Oasis drew public attention again with an intensifying battle against Japanese elevator maker Fujitec Co. The activist shareholder with a stake of more than 16.5% late last year called for an extra shareholder meeting to request a change in all Fujitec's outside directors.

The fund demanded other Japanese companies such as paper milling firm Hokuetsu Corp. and analog power semiconductor product provider Sanken Electric Co. to take measures to improve shareholder value and corporate governance.

UNDERPERFORMING STOCK PRICES

KT&G is unlikely to become a target of Oasis as the company’s corporate governance is stable and it is making future business progress with its heat-not-burn products' expanding presence in the global market dominated by Philip Morris International Inc., some industry sources said.

But the underperformance in the company’s share prices may be sufficient to trigger shareholder activism as it reflected the company has yet to boost its corporate value, others said.

KT&G shares have lost some 36% since July 2016 when it hit a record high in the South Korean stock market, while the main Kospi has gained some 20% during the period.

The stock was briefly bolstered late last year when FCP proposed measures for shareholder value but failed to maintain the momentum as KT&G prepared steps to cope with those requests.

In January, the company refused the activist funds’ call for the spinoff of its wholly owned Korea Ginseng Corp. although it unveiled a plan to spend some 900 billion won ($689.4 million) this year for share buyback and dividends.

KT&G’s executives scrambled to establish measures to prepare for a battle at the annual general shareholders’ meeting scheduled next month. The tobacco maker paid some 26 billion won in the fourth quarter of 2022 for consulting to global investment bank Goldman Sachs, US management consulting firm Boston Consulting Group, international audit company Deloitte and South Korea’s top law firm Kim & Chang, according to investment banks such as UBS.

Write to Dong-Hui Park at donghuip@hankyung.com

Jongwoo Cheon edited this article.