Top POSCO shareholder set to vote against business overhaul plan

POSCO's headquarters in Seoul / Courtesy of POSCO

POSCO board expected to push ahead with spin-off to establish holding company

By Kim Hyun-bin

The National Pension Service (NPS) is expected to vote against POSCO's plan to convert to a holding company structure and potentially spin-off some of its subsidiary units.

The service has a long track record of being against such conglomerate reorganizations in the past, claiming that such moves depreciate shareholder value.

It voted against both LG Chem in 2020 and SK Innovation in 2021, especially with regard to the spinning off of their battery businesses, believing that listing a company after the spinning off of a core business damages shareholder value.

POSCO is scheduled to hold a board meeting Friday to discuss the specifics of the holding company system and the potential spin-off plan. Despite the anticipated unfavorable stance of the NPS, industry officials expect the board will push ahead, although the specific way in which the company will be divided has not been decided, sources familiar with the issue said Wednesday.

Regardless of the method, the NPS holds the key, as it is the largest shareholder in the steelmaker, owning a 9.75-percent stake. The business spin-off plan not only has to be passed by the board of directors, but must obtain the consent of the owners of at least one-third of the total number of issued shares, and support of at least two-thirds of shareholders present at the general shareholders' meeting.

The NPS held a meeting of its Fund Management Committee, its highest decision-making body, and confirmed the final draft of its board agenda, last week.

“The decision to split a company and exchange shares for the establishment of a holding company must be made through a transparent and fair procedure, so as not to damage shareholder value,” the agenda stated.

The NPS has often reiterated that it will protect the interests of shareholders, implying that the service will engage in shareholder activities, including voting rights. Excluding the NPS, and BlackRock which has around a 5 percent stake, POSCO has no other major shareholders.

It is known that POSCO is preparing several measures to enhance shareholder value, such as promising to keep the spin-off subsidiaries unlisted, as well as reinforcing dividends. There is speculation that after any spin-off, major growth businesses such as hydrogen and lithium will be placed directly under the holding company. The possibility of share buybacks and cancellations, as well as dividend increases, are also expected to be raised at the board meeting.

“We are reviewing various measures ― mid- to long-term growth strategies ― to enhance future growth and corporate value in response to the rapidly changing environment, such as engineering a smooth transition into the low-carbon, eco-friendly era; accelerating technological innovation and reorganizing the management structure. But nothing concrete has been decided,” a POSCO Group official said.

For POSCO, it may be easier to pursue an equity spin-off method, considering the proportion of shareholder consent, because as these do not change the company's ownership structure, shareholders tend to prefer them over physical spin-offs.

On the other hand, in the case of a physical spin-off, POSCO can raise additional funds through an initial public offering (IPO) of the company in the future. However, in this latter case, existing shareholders only have a stake in the spun-off holding company and do not have a stake in the steel business, which is the main business of POSCO.

Although the rechargeable battery business that the holding company invests in is showing rapid growth, it is still not comparable in scale to the steel industry ― a key reason shareholders, including the NPS, are against the physical spin-off and the possible damage to shareholder value.