KT&G to buy back shares, rejects Ginseng unit buyout offer

South Korean tobacco maker KT&G Corp. on Thursday unveiled a plan to buy back shares and pay dividends totaling 3.7 trillion won ($2.7 billion) through 2027, while rejecting Flashlight Capital Partners’ 1.9-trillion-won buyout offer for its wholly owned unit Korean Ginseng Corp.

Buoyed by the buyback and cancellation plan, its shares rallied to their highest point in nearly seven years.

Through 2027, its 3.7-trillion-won shareholder return breaks down to 1.3 trillion won for share buybacks and cancellation, including the 150 billion won it is spending on buybacks this year, and 2.4 trillion won in dividend payments.

Its share repurchases from Nov. 8 through 2027 will represent about 20% of its outstanding shares as of the end of 2023, according to its regulatory filing. It aims to achieve a 15% return on equity by 2027.

KT&G, formerly Korea Tobacco & Ginseng Corp., made the announcement the same day it replied to Flashlight's letter of intent to acquire all of Korea Ginseng's shares.

In a letter to Flashlight, KT&G said it would focus on growing its three core businesses – health functional food, heat-not-burn e-cigarettes and overseas cigarettes – and do its best to maximize shareholder value through a steady earnings stream.

The company also asked Flashlight not to spread false information, including about its enterprise value, in order not to sow confusion among shareholders and the stock market.

It denied the Singapore-based investment firm's statement that KT&G valued itself at 1.2 trillion to 1.3 trillion won, saying it was estimated from some analysts and the company had quoted it during its 2023 investor day.

Flashlight claimed Korea Ginseng, Korea’s undisputed leader in the health functional foods market, was significantly undervalued, and thus its value was not properly reflected in KT&G’s share price.

The investment firm was founded in 2020 by Lee Sanghyun, a former Seoul chief of The Carlyle Group. It is known to hold less than a 1% stake in KT&G.

In 2022, it urged the world's No. 5 tobacco maker to spin off its ginseng unit and list it separately on the stock exchange. But KT&G refused the suggestion, which was also made by other activist funds.

THIRD-QUARTER RESULTS

The buyback plan was revealed shortly after it notched a better-than-expected operating profit in the third quarter.

Its operating profit rose 2.2% to 415.7 billion won in the third quarter from the same period last year. Revenue slipped 3.1% on-year to 1.6 trillion won. But its net profit declined 28.0% on-year to 239.9 billion won in the July-September quarter.

Compared with the preceding three months, its revenue and operating profit jumped by double digits. 

Its share price leapt 10.4% to finish at 119,700 won on Friday, after soaring to as high as 123,000 won, its intraday peak in almost seven years. Its previous peak of 126,500 won was etched on Nov. 27, 2017.

Write to Ji-Yoon Yang and Sung-Mi Shim at Yang@hankyung.com
 

Yeonhee Kim edited this article.