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Activist shareholders target Samsung to unlock value

Written by The Anand Market

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A group of investors have called on Samsung’s de facto holding company to raise dividends and carry out share buybacks, as pressure mounts on South Korean companies to correct their low valuations.

US hedge fund Whitebox Advisors, UK fund City of London Investment Management and Seoul-based fund Anda Asset Management submitted their proposals on Friday ahead of Samsung C&T’s annual meeting in March. The funds hold a stake of just over 1 percent in the company.

“Korea Discount”.

“Rather than addressing the concerns of local and foreign shareholders regarding this long-term underperformance, the Samsung C&T board of directors has repeatedly rejected or ignored our suggestions to increase shareholder value,” the fund wrote to shareholders on Friday. “Our group is convinced that this point of view is shared by a significant part of the shareholders.”

The attempt to shake up South Korea’s most powerful and famous conglomerate comes as the country’s leaders seek to replicate Tokyo’s drive to boost valuations. Japan’s Nikkei reached its highest level in 34 years in January, driven by capital outflows from China and a concerted effort by Japanese authorities to improve corporate governance.

President Yoon Suk Yeol said promoting local actions was one of his administration’s top priorities. Yoon said last month he supported introducing a legal fiduciary duty to shareholders, while South Korea’s top financial regulator raised the possibility of replicating Tokyo’s “name and shame” regime for companies that do not present proposals to improve valuations.

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The price-to-book ratio of companies listed on South Korea’s flagship Kospi index is 0.91, significantly lower than the Nikkei 225’s 2.01. Investors accuse the founding families of South Korea’s largest conglomerates of giving the prioritizing control of their sprawling business empires over paying dividends and increasing profitability.

“The Korean stock market is still very cheap due to poor corporate governance and inefficient capital allocation,” said Darren Kang, chief investment officer of the Seoul-based Life Asset Management fund.

But Changhwan Lee, activist investor and founder of Seoul-based hedge fund Align Partners, said “the landscape has changed dramatically” since the number of South Korean retail investors more than tripled during the coronavirus pandemic.

This led to the introduction of reforms aimed at protecting the interests of minority shareholders, which helped spur the growth of a new type of local activist funds.

“Every time stock prices rise in Japan while they remain stable in Korea, it strengthens the arguments of local reform advocates,” Lee said.

South Korea saw the third highest number of activist campaigns in the world last year, behind the United States and Japan, according to Insightia. There were 60 activist campaigns in South Korea in the first half of 2023, compared to 18 in the first half of 2021.

Robin Baik, a Seoul-based partner at international litigation firm Kobre & Kim, noted that with legislative elections scheduled for April approaching, authorities were under pressure to introduce new policies.

A senior investment banker in Seoul said large foreign investors still need to see more concrete signs of progress before redirecting their capital from big markets such as Japan and India.

But James Smith, who oversaw a series of bruising campaigns at Samsung and Hyundai when he ran Elliott Management’s Hong Kong office, said the case for investing in undervalued South Korean companies such as Samsung C&T remained “incredibly convincing”.

“We are convinced that the Japanese precedent is leading to progressive changes in Korea,” said Smith, whose London-based fund Palliser Capital has called on Samsung C&T management to reform its capital allocation practices.

Kang said even modest progress made by activists at the Samsung C&T annual meeting would have a “cascading effect.”

“If they succeed, it will send a strong signal to Korean companies and foreign investors that it is possible for them to cooperate.” »

Additional reporting by Andy Lin in Hong Kong