Activist funds push KT&G to address thorny issues at shareholders' meet

KT&G headquarters in southern Seoul / Korea Times file

By Lee Kyung-min

A group of activist funds filed an injunction against KT&G, Friday, in a move to table a set of thorny issues that have largely been dismissed by the Korean cigarette and ginseng product manufacturer, according to market watchers.

The legal move is the latest development in a months-long conflict between the two sides, escalated in part by KT&G's refusal to spin off its lucrative ginseng business among other recommendations made by the funds that have been brushed off.

Led by Flashlight Capital, a Singaporean activist private equity fund, the group has repeatedly demanded that the ginseng business be spun off for stock listing to recover corporate value and share prices.

However, KT&G maintains that the recommendations lack merit, saying a spin-off will do little to advance the interests of shareholders and corporate value in the long-term.

Minority shareholders are siding with the activist funds, mostly because their interests are aligned with raising the corporate growth outlook and subsequent hikes in share price and returns.

The funds ― Pandora Select Partners and Whitebox Multi-Strategy Partners ― filed an injunction at Daejeon District Court. A hearing is scheduled for next Tuesday. They are led by Lee Sang-hyun, the founder of Flashlight Capital, a private equity fund.

Alongside the spin-off, the funds have demanded that the motion include the appointment of former LG Household & Health Care CEO Cha Suk-yong and former Prudential Life Insurance CEO Hwang Ou-jin as outside directors.

The funds' move to seek a legal remedy was prompted by KT&G issuing an official comment during an investor relations event last month that a ginseng unit spin-off will not be pursued.

Also dismissed at the event was the funds' demand to strengthen KT&G's shareholder return policy. The cigarette and ginseng product manufacturer said the current policy “should hold for now.”

Whether the district court will grant the motion remains to be seen. The motions sought by the activist funds will be tabled separately from ones presented by KT&G at the shareholders meeting in March, pending a go-ahead being given by the court.

Meanwhile, Lee claimed earlier that KT&G's share price will bounce back to over 140,000 won, a level last seen in 2016, once the firm reorients its investment portfolio to better achieve environmental, social and governance (ESG) goals.

KT&G shares closed at 90,000 won ($69), continuing an upward trajectory that began on Feb. 17, when it hit a low of 87,100 won.