Elliott wins ISS support for board shake-up at Hyundai Motor

ISS, however, did not support Elliott’s call for the return of almost RM25b in excess cash to shareholders through special dividends

NEW YORK • Elliott Management Corp’s efforts to revamp the boards of Hyundai Motor Co Ltd and Hyundai Mobis Co Ltd were given a boost on Monday with a prominent shareholder advisory firm supporting some of its director nominees.

Institutional Shareholder Services Inc (ISS) urged investors in Hyundai Motor to support two of Elliott’s three nominees for the board. It also threw its support behind two of Elliott’s nominees at Mobis.

In a partial win for the Korean group, ISS didn’t support Elliott’s call for the carmaker and its biggest shareholder to return almost seven trillion won (RM25.34 billion) in excess cash to shareholders through special dividends.

The dual reports on Monday by ISS gave Elliott a lift after another prominent shareholder advisory firm, Glass Lewis & Co, came out against the New York-based hedge fund’s effort at Hyundai Motor.

ISS agreed with Elliott that the companies’ total shareholder returns and operational underperformance appear to be at least partially linked to shortcomings in strategies, operational execution and capital allocation. Therefore, changes at the board level were warranted, it said.

“The company’s track record in capital allocation is not comforting, though a reconstituted board might be better able to assess the real capital needs and determine an appropriate level of returns to shareholders going forward,” ISS said in the Mobis report.

Director Vote

The advisory firm said the most favourable outcome at Mobis would be to add two directors to the nine-member board and to elect two of Elliott’s nominees — Robert Kruse Jr and Rudolph William Von Meister — along with two from the company’s slate. At Hyundai Motor, it recommended investors vote for two of Elliott’s three nominees, John Y Liu and Robert Randall MacEwen, and against two of the company’s three nominees, Eugene Ohr and Lee Sang-seung.

Hyundai Motor said yesterday that its own outside-director nominees will enhance transparency of the board, while welcoming ISS’ support for the company’s shareholder return policy. Elliott welcomed the advisory firm’s support for its director recommendations, and urged shareholders to vote for all its proposals at a meeting on March 22. Mobis referred to its recent statement that backed the current nine-member board system.

Shares of the carmaker rose as much as 3.3% yesterday in Seoul, while those of Mobis gained 2%.

R&D Spending

Glass Lewis argued in its report last Friday that Hyundai Motor needs to invest heavily in research and development (R&D). It also favoured the automaker’s nominees for independent directors, opposing Elliott’s.

Separately, Daishin Economic Research Institute, one of South Korea’s biggest proxy advisory firms, backed the companies on their dividend plans and favoured Hyundai Motor’s proposed director nominees. It didn’t make any recommendations for Mobis’ board.

Elliott, run by billionaire Paul Singer, wants the companies to create new sub-committees overseeing compensation and governance. It argues that both companies would still have ample cash to pounce on any opportunities that arise.

The hedge fund’s proposals are the latest salvo in its dispute with Hyundai Group. Last year, Elliott successfully halted an US$8.8 billion (RM35.97 billion) merger for restructuring of the auto group, arguing it wasn’t in the best interest of shareholders.

Hyundai Motor has said it’s conserving cash at its subsidiaries to survive intense competition in the global auto industry, where rivals from Volkswagen AG to General Motors Co are plowing in billions of dollars to develop electric, driverless and flying cars as newer technologies upend transportation. — Bloomberg