Pros and Cons of Hanmi-OCI Merger, Market Focuses on National Pension Service Voting Rights
Past National Pension Service Voting... Respect for Management but Strict on Legal Risks
The National Pension Service (NPS) is set to hold the casting vote on the potential merger between Hanmi Pharmaceutical Group, a rare 'heterogeneous combination' in the domestic corporate scene specializing in new drug development, and OCI Group, a materials and energy specialist. Amid a management rights dispute between the owner families over the Hanmi-OCI merger, the largest individual shareholder siding with Hanmi's eldest and second sons makes the NPS's 7.66% stake in Hanmi Science the key variable. While the NPS has actively exercised voting rights in past management disputes, it has often supported the current management unless the executives involved posed legal risks or engaged in unethical management.
National Pension Service’s History of Exercising Voting Rights in Major Management Disputes
In the 2020 management dispute between Chairman Cho Won-tae and former Korean Air Vice President Cho Hyun-ah, the NPS sided with Chairman Cho Won-tae. The NPS held a 2.9% stake. Amid the overall downturn in the airline industry due to the COVID-19 pandemic, the Stewardship Responsibility Committee leaned toward maintaining the current management. The activist private equity fund KCGI and the 'three-party alliance' led by Cho Hyun-ah raised allegations such as Airbus rebates but failed to prove them, thus not influencing the decision. Subsequently, the NPS cast dissenting votes against Chairman Cho Won-tae’s reappointment as an inside director of Korean Air, recognizing his leadership of the Hanjin Group but consistently opposing his control over key affiliates.
In the management dispute between the eldest and second sons of Korea & Company, the NPS supported the eldest son, Advisor Cho Hyun-sik. In March 2021, the NPS opposed the appointment of Chairman Cho Hyun-beom as an inside director at the general shareholders' meeting. It also supported the appointment of Professor Lee Han-sang, recommended by Advisor Cho Hyun-sik, as an audit committee member. This was after Chairman Cho Hyun-beom was found guilty of receiving kickbacks from a specific subcontractor.
The NPS has generally focused on recognizing current management rather than actively intervening in management disputes, or has used stock price rises during disputes as opportunities to realize profits. However, it has often opposed agendas involving the appointment of executives with legal risks as inside directors. For example, before the shareholders' meetings of Hyosung Corporation and Hyosung TNC, the NPS opposed the appointment of Chairman Cho Hyun-joon as an inside director due to his past record of damaging corporate value. Chairman Cho had been fined for unfair support of his personal company, among other reasons.
The NPS has also realized profits by capitalizing on management disputes. During the Hanjin KAL management dispute, the stock price surged significantly, but the NPS was criticized for not realizing profits in time. Last year, amid a management dispute between HYBE and Kakao over SM Entertainment shares purchased from Chief Producer Lee Soo-man, the stock price reached an all-time high. The NPS sold more than half of its holdings, realizing profits exceeding 100 billion KRW. The NPS is also known to have indirectly participated through entrusted asset managers in MBK Partners’ hostile takeover bid for Korea & Company.
National Pension Service Proxy Advisor Sustainalytics Supports Mother and Daughter’s Nomination
Although the Hanmi Group management dispute caused the holding company Hanmi Science’s stock price to soar, the NPS did not sell its shares. The NPS’s purpose for holding Hanmi Science shares is 'passive investment.' Passive investment means exercising voting rights only on agenda items presented at shareholders' meetings without influencing management rights. It is reported that agenda items related to Hanmi Science’s voting rights have not yet been submitted to the Stewardship Responsibility Committee. In such cases, the Fund Management Headquarters exercises voting rights directly.
To enhance expertise and objectivity in exercising voting rights, the NPS selects and utilizes multiple agenda analysis advisory firms. Sustainalytics, an NPS advisory firm, recommended supporting all board candidate proposals from Hanmi Science and opposed the shareholder proposal from the Lim Jong-yoon faction, citing concerns about board deadlock. Global proxy advisor Glass Lewis also supported all six Hanmi candidates and opposed the five candidates from the brothers’ faction. Another global advisor, ISS, took a neutral stance by supporting three company candidates and two brother faction candidates. Meanwhile, domestic advisory firm Korea ESG Standards Institute (KCGS) supported four of the five shareholder proposal nominees and recommended abstention rather than opposition for the six company nominees.
The 51st general shareholders' meeting of Hanmi Science will be held at 9 a.m. on the 28th at the Laviedol Hotel in Hwaseong, Gyeonggi Province. The meeting will feature a vote on the appointment of directors and audit committee members. The mother and daughter faction proposed Lim Ju-hyun and Lee Woo-hyun (Chairman of OCI Holdings) as inside directors. The brothers’ faction recommended Lim Jong-yoon and Lim Jong-hoon as inside directors through shareholder proposals.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
