Shareholder battles loom as private equity turns to activism in Korea

As private equity firms increasingly adopt activist tactics, Korean firms brace for more shareholder showdowns

After years of expanding through partnerships with large corporations, South Korea’s private equity (PE) industry is increasingly turning to activist strategies to maximize returns. Since many Korean companies remain undervalued, domestic and global private equity firms and asset managers see an opportunity to leverage minority shareholder support to engage in activism. As private equity funds adopt activist tactics, companies are bracing for more shareholder showdowns during the annual shareholder meeting season next March.

Graphics by Jeong Seo-hee / ChosunBiz

Kolmar Holdings, the parent company of cosmetics original development manufacturer Kolmar Korea, closed at 8,120 won on Nov. 7, up 12.93% from the previous day, according to the Korea Exchange. Kolmar shares surged following news that Dalton Investments, a US-based activist fund, had acquired a stake in the company.

Dalton began accumulating shares earlier this year when the government announced the corporate value-up program, an initiative aimed at boosting the value of listed companies. Investors expect Dalton to push for more aggressive shareholder return policies at Kolmar.

Shareholder activism in South Korea has been on the rise, with the number of companies targeted by activist funds reaching 77 last year, marking the fifth consecutive year of increases. This represents a nearly tenfold jump from just eight companies in 2019, according to data from the Federation of Korean Industries and law firm Lee&Ko. The number of activist interventions rose by 57% in the past year alone.

Activist funds seek more than just returns on equity investments, leveraging their positions as shareholders to influence corporate decision-making. They typically advocate for better corporate governance, increasing dividends, and other measures designed to boost shareholder value, often aiming for short-term stock price gains. Recently, local activist funds such as KCGI and Align Partners have been particularly active, making headlines for their campaigns.

Investors are now waiting to see whether this activist playbook will gain traction among more traditional private equity players. Private equity firms have generally acquired companies, increased their value, and later sold them for profit—a model that created the perception that private equity firms are investment partners who collaborate with companies they invest in.

But MBK Partners challenged this dynamic by mounting an aggressive campaign last year to control Hankook & Company (formerly Hankook Tire). Recently, MBK launched a tender offer for Korea Zinc.

“While private equity firms primarily focus on buyout deals, many are willing to adopt activist strategies when the situation calls for it,” said an industry insider. “With fewer buyout opportunities available, private equity firms need to explore new strategies.”

Elliott Management, a U.S. activist fund known in Korea for targeting Samsung and Hyundai, initially focused on buyouts, investing in acquiring unlisted tech companies and taking them public. But Elliot has stepped up activism in recent years, such as pressuring AT&T to sell assets, despite holding only a 1% stake in the company in 2019.

Some experts note that full-fledged activism might struggle to gain widespread traction in Korea. “Local private equity firms that primarily operate in Korea may find it difficult to adopt aggressive activist tactics due to their ties with major conglomerates and limited partners (LPs),” said an industry insider.