[Beginner's Guide to Stock Investing] LG Family Lawsuit Sparks Stock Surge... Is the Management Dispute a Boon?

Editor's Note[Joorini Guide] is a smart investment guide for 'Joorini (stock + beginner)'. We will kindly and easily explain stock stories that are unfamiliar to Joorini.

There was a recent incident that stirred the business world.

It is the inheritance dispute within the LG family.

The LG family inheritance dispute is attracting even more attention as it is the first such case since the company's founding in 1947.

The case involves the late Chairman Koo Bon-moo's wife, Mrs. Kim Young-sik, and their two daughters filing a lawsuit to reclaim inheritance rights against Chairman Koo Kwang-mo.

Following this news, LG's stock price soared vertically.

Usually, one might think a management rights dispute would be negative for stock prices, so the rise might seem puzzling to Joorini.

Through the LG family's inheritance lawsuit, which had no issues for 75 years during succession,

let's take a look at the relationship between management rights disputes and stock prices.

LG Family Inheritance Dispute

What image comes to mind when you think of LG?

Probably words like ‘harmony’ and ‘unity’ come to mind.

This is because, compared to other companies, the LG family has many children but has followed the principle of primogeniture for 75 years, allowing only sons to participate in management.

Despite this, they have managed the company stably without any noise.

However, now, four years after Chairman Koo Kwang-mo took office, an unexpected inheritance dispute has arisen, drawing attention to its background.

The case is as follows.

The late Chairman Koo Bon-moo, the third chairman of LG Group, had one son and two daughters.

However, in 1994, Koo Won-mo, who was a strong candidate as LG Group's next successor, suddenly passed away in a traffic accident, and Chairman Koo Kwang-mo, his nephew, was adopted as a son to inherit management rights.

But just four years after Koo Kwang-mo became chairman, his mother Mrs. Kim Young-sik and two younger sisters filed a lawsuit to reclaim inheritance rights.

Depending on the lawsuit's outcome, the management rights of LG Group, ranked 4th in the business world, could change, attracting even more attention.

In 2018, following the passing of the late Chairman Koo Bon-moo, Chairman Koo Kwang-mo received 8.76% of Koo Bon-moo’s shares and became the head of LG Group.

In this process, Koo Bon-moo’s daughters, Koo Yeon-kyung and Koo Yeon-soo, inherited 2.01% and 0.51% respectively.

To uphold the primogeniture principle, the spouse and children other than Koo Kwang-mo agreed not to receive their legal inheritance shares but instead received assets worth about 500 billion KRW, including real estate, deposits, and artworks.

Receiving shares different from the legal inheritance ratio is known to be a tradition of the LG family.

However, the lawsuit filed by Mrs. Kim Young-sik and the two daughters of the late chairman demands inheritance according to the legal inheritance ratio.

The legal inheritance ratio is 1.5 shares for the spouse and 1 share per child.

Therefore, according to the legal inheritance ratio, Mrs. Kim would receive 3.75%, and the remaining shares would be divided equally with 2.51% each to Chairman Koo Kwang-mo, Koo Yeon-kyung, and Koo Yeon-soo.

Regarding why the lawsuit was filed only after more than four years,

the three women claim, "We only later found out that there was no will."

LG’s side counters, "It is true that no will was left, but the matter was already settled after 15 rounds of negotiations, and the presence or absence of a will could have been sufficiently confirmed."

If the demands of Mrs. Kim and the two daughters are met, Chairman Koo Kwang-mo’s stake in LG Corp. would shrink from 15.95% to 9.7%, while the three women’s combined stake would rise to 14.04%.

LG Stock Price Soars

Despite the unexpected lawsuit within the LG family, LG’s stock price is soaring.

LG’s stock price surpassed 90,000 KRW for the first time in 1 year and 4 months.

On the 10th, when news of the inheritance dispute involving Chairman Koo Kwang-mo broke, LG’s stock closed at 85,900 KRW, up 6.58%.

During the day, it even rose as much as 10.42%.

The next day, it rose again by up to 7.80%, breaking the 90,000 KRW mark during trading, and on the 16th, it closed at 90,900 KRW, up 2.60%.

LG’s stock price exceeding 90,000 KRW is the first time in 16 months since November 15, 2021 (90,300 KRW).

Are Management Rights Disputes Positive for Stock Prices?

The market widely views the stock price fluctuations amid the LG family lawsuit not as a simple property dispute but as a 'management rights dispute'.

It has been confirmed through several cases that management rights disputes can act as positive factors for stock prices.

The Hanjin KAL incident is a representative example.

At that time, Chairman Cho Won-tae of Hanjin KAL, the holding company of Korean Air, clashed with the alliance of Ban Doo Construction, the activist fund KCGI, and former Korean Air Vice President Cho Hyun-ah over management rights.

The stock price even soared to the 110,000 KRW range.

The Lotte Holding case in 2020 is also cited as an example of stock price increases due to management rights disputes.

It arose when Shin Dong-joo, chairman of SDJ Corporation and elder brother of Shin Dong-bin, chairman of Lotte Group, submitted a proposal to dismiss Shin Dong-bin from the board of Lotte Holdings.

At that time, Lotte’s stock price hit the upper limit.

More recently, there was also the SM management rights dispute.

Management rights disputes are perceived as positive for stock prices because parties with strong financial power buy shares to secure the largest shareholder position, reducing the number of shares available in the market.

When there are many buyers but fewer sellers compared to buyers, prices soar.

Dear Joorini, please do not fall into the mistake of equating management rights disputes solely with stock price increases and chasing only stocks related to such disputes.

The 2011 Hi-Mart case saw a management rights dispute but the stock price plummeted.

Even if stock prices rise during management rights disputes, as seen in the SM case, stock prices plunged after the dispute ended.

Rather than focusing on themes or issues like management rights disputes,

we recommend developing the insight to distinguish good stocks through industry outlook and company fundamentals.

Instead of stocks that fluctuate sharply in the short term due to issues, try to find and invest in stocks that steadily rise without wavering.

If you do so, we believe the foundation for 'value investing' emphasized by Warren Buffett will also be established in our stock market.

We support your wise investments today as well and conclude this article.

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This article is from [Joorini Guide], published weekly by Asia Economy. We explain stock-related financial news and difficult economic stories in an easy and friendly way so that stock beginners can understand. By subscribing, you can receive articles for free.

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