EXCLUSIVE Whitebox considers lawsuit against LG

LG Group headquarters in Seoul / Yonhap

US hedge fund considers 'all options' to prevent spin-off

By Park Jae-hyuk

Whitebox Advisors, a U.S.-based activist hedge fund manager that has demanded LG Group stop its planned spin-off of affiliates, is considering taking legal action against the Korean conglomerate over its refusal to honor the request, a source familiar with the matter told The Korea Times, Thursday.

“Whitebox is currently considering all legal and other options,” the foreign source said on condition of anonymity.

Earlier this week, Whitebox head of equity Simon Waxley sent a letter to the board of directors of LG Corp., the group's holding company, to call for the suspension of their plan to spin off a newly created holding company comprised of LG Hausys, LG MMA, Silicon Works, LG International and Pantos for LG Group Chairman Koo Kwang-mo's uncle, Koo Bon-joon, to develop his own business group.

In the letter, Waxley said LG should immediately cease the current transaction plan and propose a new spin-off strategy which maximizes value for all shareholders. He also urged other shareholders and regulators to assess this transaction in light of their priorities, including environmental, social and corporate governance (ESG) policies, and act accordingly.

LG has refused to accept the proposal, emphasizing it believes the spinoff will improve shareholder value once it is completed. The company said the spinoff will allow it to focus more on its core business sectors, including electronics, chemicals and telecommunications.

Waxley previously worked for another U.S. activist hedge fund manager, Elliott Management, which had problems with the management of Samsung C&T in 2015 and Hyundai Motor Group in 2018, so concerns have emerged that Whitebox could join hands with other foreign capital as Elliott did, to better threaten LG.

According to the source, Whitebox does not yet plan to work with other shareholders.

However, he said the U.S. asset manager has already received “overwhelmingly” positive feedback from other investors, hinting it could launch a fiercer activist campaign, in contrast to the view of some local market observers that its proposal is “meaningless,” considering the stake it holds. Whitebox is presumed to hold around a 0.6 percent to 1 percent stake in LG Corp.

Whitebox's possible countermeasures, the source mentioned, are somewhat contradictory to the government's claim that there is a slim chance of a revised Commercial Law causing lawsuits by foreign investors.

According to the revision passed at the National Assembly this month, Whitebox is allowed to file a shareholder derivative suit against board members of LG subsidiaries, if it holds over a 0.5 percent stake in LG's holding company for more than six months. A shareholder derivative suit means a lawsuit brought by a shareholder on behalf of a corporation against a third party, whom are executive officers or directors in most cases.

“As far as we know, foreign funds have never filed a shareholder derivative suit to threaten Korean firms,” a Ministry of Justice official said Wednesday.

Whitebox appears to be trying to prevent its latest action from being seen as a measure that capitalizes on the new law. Waxley said in the letter that the company has repeatedly sought to engage with LG's board of directors and representatives of the management team in a constructive, private manner over the past two years.

“It is extremely disappointing that our feedback and viewpoints have been repeatedly dismissed or ignored,” he said in the letter. “Because of the lack of engagement with LG's Board ― despite multiple communications ― we have been forced to make this letter public.”

The anonymous source said Whitebox decision to make the letter public was because an upcoming shareholder vote on the spin-off has increased the urgency of communicating this issue to shareholders. The vote is set to take place Dec. 31. According to the source, the U.S. firm is also denying speculation that its recent move was intended to hike dividend payments.