Activist funds head for clash with companies at upcoming shareholder meetings

[Photo by MK DB]

Activist funds operating in Korea are heading for a proxy fight, demanding the appointment of new directors who will represent shareholders’ interests ahead of shareholding meetings.

Companies targeted by the funds are seen in compliance with demand for more dividend but are against other proposals, including a board shakeup, which will lead to conflicts with the funds.

Align Partners, which has recently been raising its voice as an activist fund, is aiming to join the board of SM Entertainment Co., a leading entertainment agency, in partnership with Kakao Corp., Align’s Chief Executive Officer Lee Chang-hwan told a local media outlet on Thursday.

The remarks come after Kakao announced its acquisition of a 9.05 percent stake in SM on Tuesday to become the second largest shareholder of the entertainment company. Kakao and SM also agreed to cooperate to strengthen the competitiveness in their music and content businesses.

During a shareholder meeting in March last year, SM succumbed to the fund’s demand to appoint an auditor it recommended.

Korea Corporate Governance Improvement (KCGI) logo [Courtesy of KCGI]

Another activist fund, Korea Corporate Governance Improvement (KCGI), is calling for the resignation of Osstem Implant Co.’s Chairman Choi Kyu-ok. KCGI CEO Kang Seong-bu argued that Osstem Implant should be operated under a professional management system. KCGI is working on a specific action plan regarding a recent tender offer from other funds. KCGI will contribute to improving the governance structure of Korean companies and it will look for other investment targets once its investment in Osstem Implant is completed, Kang said.

MBK Partners, a leading Asian private equity firm, and Unison Capital Korea last month agreed on a tender offer to acquire management rights of Osstem Implant for up to $1.7 billion.

Truston Asset Management, which has been promoting shareholder rights against Taekwang Industry Co. and BYC Co., is planning to dispatch directors to represent the rights and interests of minority shareholders of the two companies. It is arguing that the two companies should raise dividends and cash flow, which are the lowest among listed companies in Korea.

Flashlight Capital Partners and ANDA Asset Management are requesting KT&G Corp. to separate itself from Korea Ginseng Corp., expand the shareholder return and recommend outside directors. However, KT&G is rejecting their demands and are expected to clash at the company’s upcoming shareholder meeting.

Listed companies are working on measures to defend management rights, believing activist funds will demand more in the future.

Activist funds will gradually see their influence, capital power and expertise to make shareholder proposals, but it is difficult to accept their requests that may damage the long-term development and growth of companies, said Lee Jae-hyeok, policy division head of Korea Listed Companies Association.

Companies have become more compliant to shareholder proposals, but shareholder activism must win public consensus, said Kim Hyung-kyoon, director of Tcha Partners Asset Management Co.