FCP Sends Certified Letters to KT&G Subsidiary Funds and Foundations

Details of Shareholders' Meeting Voting Rights Exercise and Requests for Verification of Various Suspicions
KT&G Welfare Foundation, Scholarship Foundation, In-house Welfare Labor Fund, etc.

Flashlight Capital Partners (FCP) announced on the 15th that it has sent a certified letter to KT&G and its affiliated funds and foundations requesting confirmation regarding the exercise of voting rights at shareholders' meetings and various suspicions.

The matters FCP requested to verify concern the exercise of voting rights at shareholders' meetings by these funds and foundations over the past 10 years, whether there was direct involvement by management in the hiring and operation of chairpersons, and related issues. Regarding voting rights, FCP argued that it is necessary to closely examine whether they represented the management's position. Furthermore, it urged management to clearly state their stance on treasury stock cancellation.

FCP analyzed that KT&G’s affiliated funds and foundations hold 11% of shares based on voting rights criteria. It is known that six funds and foundations are included, such as the KT&G Welfare Foundation, Scholarship Foundation, In-house Welfare Labor Fund, and Employee Stock Ownership Association. The Welfare Foundation and Scholarship Foundation are chaired by former KT&G President Min Young-jin and current President Baek Bok-in, respectively.

FCP pointed out the possibility that the shares contributed to these institutions could be used by the current management to defend their management rights. In particular, it anticipated that treasury stocks amounting to 15% could also be used as a “white knight” acting as a friendly buyer. Previously, KT&G had stated that it would disclose a shareholder return plan including treasury stock cancellation in the second half of this year.

Lee Sang-hyun, CEO of FCP, criticized, saying, "The KT&G board of directors has contributed treasury stocks that should be canceled to affiliated foundations and funds by board resolution alone without asking shareholders' opinions to enhance shareholder value," and added, "The fact that affiliated foundations and funds hold 11% of shares is unacceptable," further stating, "Now I understand why they were not proactive about treasury stock cancellation." He warned, "If there are issues with the response to the certified letter, we will consider legal action through exercising shareholder rights." He also urged, "Management is only stalling with indefinite promises. They must clearly state their position on treasury stock cancellation at this regular shareholders' meeting."

Lee emphasized, "Since treasury stock cancellation does not involve cash outflow, if KT&G management has genuine intentions for shareholder returns, they should clearly express their support for the agenda on treasury stock cancellation submitted to the shareholders' meeting, rather than just announcing superficial plans." He added, "Going forward, FCP will closely monitor whether KT&G uses treasury stocks to contribute assets free of charge to affiliated funds and foundations and will vigilantly observe management’s exercise of voting rights."

Meanwhile, at the KT&G shareholders' meeting scheduled for March, amendments to the articles of incorporation to make treasury stock cancellation a shareholders' meeting decision and the agenda on treasury stock cancellation will be submitted.