Hyundai Motor succession plan suffers setback

Hyundai Motor Vice Chairman Chung Eui-sun presents the automaker’s Sonata plug-in hybrid electric vehicle at the North American International Auto Show in Detroit, Tuesday. / Courtesy of Hyundai Motor

Chung family fails to sell 13.4% stake in logistics unit

By Lee Hyo-sik

Hyundai Motor Group Chairman Chung Mong-koo and his son Eui-sun have failed to sell their stakes in the group’s logistics unit due to a mismatch in sales terms, company officials said.

They planned to sell part of their stakes in Hyundai Glovis in a block deal after the market closed on Monday, claiming the sale abided by the revised fair trade rules governing intra-group transactions.

Analysts speculated that the botched sale was largely designed to help Chung Eui-sun, who is Hyundai Motor vice chairman, raise money to solidify his control over the group by increasing his stake in key units.

Hyundai Motor said Chairman Chung and his heir apparent failed to sell a combined 13.4 percent stake in Hyundai Glovis, or 5.02 million shares. Several institutional investors showed interest in acquiring shares, but the sales did not proceed as both sides failed to iron out differences over the sale price and other terms, according to the company.

Chairman Chung holds 11.51 percent of Hyundai Glovis, while his son has 31.88 percent. The block sale would have raised about 1.5 trillion won ($1.4 billion won).

Investors dumped company shares Tuesday on the news that the controlling family attempted to offload their holdings. Hyundai Glovis shares plunged by the 15-percent daily limit to 255,000 won per share.

“Unfortunately, the sales did not go through largely because the volume was too large,” a Hyundai Motor spokesman said. “The two Chungs failed to reach an agreement with potential buyers over the price and other terms. For now, they have no plan to resume the block sale.”

The company had earlier sent a request for proposal to institutional investors at home and abroad through Citibank.

“The stake sale is aimed to comply with the country’s revised anti-trust law,” the spokesman said. “The law bans business group owners and their family members from holding over 30 percent stakes in affiliates, which earn over 20 billion won annually or 12 percent of annual sales through intra-group dealings.”

In 2013, Hyundai Glovis earned nearly 3 trillion won from doing business with its affiliates, accounting for about 30 percent of its 10.2 trillion won annual sales.

The junior Chung, who is currently in Detroit to attend a car show, said Tuesday that the stake sale is to improve Hyundai Motor Group’s governance structure in accordance with the law. “It is not to facilitate the succession of the group’s managerial rights. You will see in a few days why we tried to sell Glovis shares,” he said.

However, according to a person familiar with the matter, Chung Eui-sun will likely attempt to dispose of his stakes in the logistics unit again to secure funds and buy more shares in Hyundai Mobis and Kia Motors, two of the three key units of Hyundai Motor Group.

“There is no doubt that the vice chairman needs money to boost his control over the group. To do so, he has to increase his stakes in the group’s key units. Further changes will follow as the group pushes ahead with the third-generation succession,” he said.

In October, Hyundai Motor Group decided to list its advertizing unit, Innocean Worldwide, on the local bourse in the first half of this year. This was widely seen as a move to accelerate the father-to-son succession.

After selling a 30-percent stake in return for 300 billion won in August, the junior Chung currently holds a 10-percent stake in Innocean.