S.Korea’s KT&G engulfed in lawsuit against activist funds

The world’s fifth-largest tobacco maker KT&G’s battle against activist investors intensified as a group of funds sued the South Korean company in a local court for refusing their requests for actions such as the spinning off the ginseng business.

Agnes, Pandora Select Partners LP and Whitebox Multi-Strategy Partners LP on Feb. 17 filed an injunction at Daejeon District Court to force KT&G Corp. to include their proposals in the agenda for its annual shareholder meeting next month, the company said in a regulatory filing on Friday.

Agnes is headed by Sanghyun Lee, the founder and CEO of Flashlight Capital Partners Pte. (FCP), which has been leading the shareholder activism with a 1.1% stake against the leading South Korean tobacco manufacturer, according to industry sources.

The plaintiffs demanded that the company approve their proposals such as the spinoff of Korea Ginseng Corp. and cash dividends of 10,000 won ($7.7) per ordinary share at the shareholder meeting, requesting KT&G to notify those agenda shareholders two weeks before the meeting, the company said in the filing.

“We plan to deal with (the lawsuit) in accordance with legal procedures,” KT&G said.

KT&G last month refused activist funds' requests to spin off and list its ginseng unit for shareholder value and spend some 900 billion won this year for share buybacks and dividends.

ACTIVIST FUNDS’ REQUESTS MAY BE VOTED ON AT SHAREHOLDER MEETING

According to the Commercial Act, a company’s board of directors is required to address shareholder proposals at a shareholders' meeting, except for those violating laws or articles of association, as well as those prescribed by Presidential Decrees.

If the court, which is scheduled to handle the case on Feb. 28, approves the activist funds’ requests, KT&G must hold a vote on the agenda proposed by the company and another for investor suggestions at the shareholder meeting.

Some requests from FCP such as a change in dividend policy need a minimum of 66.7% support for approval.

KT&G’s major shareholders included National Pension Service (NPS) with a 7.44% stake as of the end of September last year, US asset management company First Eagle Investment Management with 7.1% and Industrial Bank of Korea with a 6.9% stake.

NPS, the world’s third-largest pension fund, has vetoed only two proposals, including one for directors’ salary cap, among 35 cases in the last five years, but the South Korean state-run fund plans to intensify its shareholder engagement.

Write to Ji-Eun Ha at hazzys@hankyung.com
 
Jongwoo Cheon edited this article.