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Hyundai Mobis Co.’s latest plan brings to mind one image: a damp squib. Again.
The South Korean chaebol’s auto-parts unit released an outline to “maximize†shareholder value. It’ll do anything but that.
The company also formally proposed family heir Euisun Chung as CEO of the unit, which has been under fire by Paul Singer’s Elliott Management Corp. So Chung had to put something on the table to appease investors. After all, he did promise increased engagement months ago, after moving closer to succeeding his father. The stock has plummeted almost 20% since April, when the activist investment fund started rattling at its door. In response, Elliott urged shareholders to vote on its own set of shareholder resolutions.
Let’s take a look at Mobis’s latest plan, which addresses some of the issues Elliott raised in its initial “Accelerate Hyundai†proposal. To build “firm trust with shareholders,†the company said it will return 2.6 trillion won over the course of three years. Of this, 1.1 trillion won will come in the form of dividends; 1 trillion from a share buyback; and
another 500 billion from the cancellation of treasury shares.
The plan boosts buyback amount from 188 billion won a year. Those shares won’t be canceled but used for various other things. Treasury-share cancellation amount is same as previously announced. That still leaves a stash of cash on table: The company had net cash of 7.4 trillion won at 2018-end. Over the next three years, it plans to hold a “contingency cash reserve†of 3.5 trillion won and spend 4 trillion won on futuristic growth plans including 200 billion to 400 billion won of equity investments in new tech startups.
The capex plans are aggressive, especially in the auto industry’s current cost environment, as we’ve written. Mobis spent around 2.5 trillion won over the last three years, meaning the company is now planning to shell out almost 60 percent more to expand operations. The company said it plans to appoint two new independent directors. Granted, both nominees bring international experience to the table: Karl-Thomas Neumann in autos and car parts, and Brian D. Jones in finance. But the remaining seven are all Korean with limited diversity in experience, and four are already company executives. The board’s ratio of independent directors, and its size, is below global peers’.
Elliott’s resolutions, meanwhile, include a dividend of 2.5 trillion won for the common voting shares; expanding the board size; establishing compensation and governance committees at Mobis; and naming two other
independent-director nominees with expertise in the global auto industry. If the younger Chung really wants to show he’s heralding a new era, it’s worth making a bolder statement.
Even if Mobis’s latest resolutions get passed in March, investors shouldn’t get too excited. Meeting shareholders like Elliott in middle will be key to showing change is actually afoot. But what matters most is delivering on the group’s larger and more difficult restructuring. So far, it’s looking like more of the same.
—Bloomberg
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
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