FCP Officially Proposes Shareholder Motion to KT&G... Demands Appointment of Cha Seok-yong and Hwang Woo-jin as Outside Directors

Claim of 4 Trillion Won Corporate Value Upon Insanggongsa Separate Listing
Proposals for Increased Shareholder Returns, Governance Reform, and Articles of Incorporation Amendments
Vote Battle at March Shareholders' Meeting

[Asia Economy Reporter Jeongsoo Lim] Flashlight Capital Partners (FCP), which had demanded KT&G to separate its ginseng business, officially formalized a shareholder proposal centered on the separate listing of the ginseng business ahead of the KT&G shareholders' meeting scheduled for March 19. The proposal also includes demands to appoint Cha Seok-yong, CEO of LG Household & Health Care, and Hwang Woo-jin, former CEO of Prudential Life Insurance, as outside directors.

On the same day, FCP officially submitted the proposal and released a related video on its official YouTube channel. Lee Sang-hyun, CEO of FCP, explained, "FCP meets the shareholder proposal qualification requirements under the Commercial Act (ownership of 1.0% or more). During the shareholder briefing last December, we requested a public debate with the CEO and meetings with the board of directors at KT&G, but these were not realized due to management opposition. Therefore, we officially sent the shareholder proposal to have the agenda item included in the shareholders' meeting."

The core content of the shareholder proposal is the separate listing of the ginseng business. The argument is that due to the nature of the tobacco industry, many institutional investors find it difficult to invest, so the governance structure should be changed to allow investment in the ginseng business. CEO Lee emphasized, "For the ginseng business to leap forward as a global company, proven leadership is required, and for this, the exercise of authority by appointing the ginseng business CEO from the tobacco company must be stopped." He also predicted, "If the ginseng business is separated, it could be valued at about 4 trillion KRW."

They also proposed shareholder returns of 20,000 KRW per share (10,000 KRW each for dividends and share buybacks), quarterly dividends, and cancellation of about 15% or more of treasury shares. CEO Lee said, "The over 6 trillion KRW in liquid assets currently held by KT&G has accumulated because it has not been returned to shareholders over the past 15 years. The shareholder return plan announced by KT&G in 2021 is unrelated to using the current cash holdings." He added, "Combining retained earnings and reserves amounts to about 7 trillion KRW, so the total 2.3 trillion KRW needed for shareholder returns is by no means excessive."

Chaseok Yong, CEO (Vice Chairman) of LG Household & Health Care

They also demanded amendments to the articles of incorporation. Currently, quarterly dividends are only possible as year-end and semi-annual dividends, so to implement quarterly dividends, the articles must be amended to allow dividends at the end of each quarter. CEO Lee stated, "Many global companies in the same industry, such as Philip Morris, BAT, Altria, Samsung Electronics, SK Telecom, Shinhan Financial Group, and KB Financial Group, already implement quarterly dividends. If there is will, it can be done anytime." He also proposed amending the articles to allow the cancellation of treasury shares to be resolved at the shareholders' meeting. Currently, the board of directors holds the authority to amend the articles.

Hwang Woo-jin, former CEO of Prudential Life Insurance

Additionally, to normalize governance, they demanded that the evaluation and compensation committee, which assesses executive performance and determines compensation, be codified in the articles of incorporation. Along with this, they recommended Cha Seok-yong and former CEO Hwang Woo-jin as outside director candidates. CEO Lee stated, "Both candidates have extensive experience of great success in global markets and are qualified to be mentors and strict supervisors of KT&G’s CEO, whose market capitalization exceeds 10 trillion KRW."

He said, "The proposals sent by FCP are foundational steps for KT&G to advance as a global company and a company with accountable ownership." He added, "The shareholders' meeting scheduled for March will be the best forum to hear the diverse voices of shareholders regarding the proposals put forward by FCP."