March Regular General Meeting Followed by Renewed Disputes
Undervaluation Criticism Since 2022
Continued Calls for Demerger... Also Seen as an Attempt to Boost Stock Price
Singapore-based activist fund Flashlight Capital Partners (FCP) has proposed to KT&G management that it acquire its subsidiary KGC Ginseng Corporation for nearly 2 trillion won. KT&G responded by stating that the proposal was unilaterally disclosed by FCP. Earlier this year in March, FCP launched an offensive at KT&G’s regular shareholders’ meeting over the appointment of the president and other issues. Industry insiders view FCP, which holds less than 1% of KT&G shares, as attempting to revive the dispute to boost the stock price.
According to related industry sources on the 15th, FCP announced in a press release distributed the previous day that it had sent a letter of intent (LOI) to KT&G’s board to acquire 100% of its subsidiary Ginseng Corporation for 1.9 trillion won. FCP emphasized that the proposed acquisition price amounts to 150% of the estimated 7 to 8 times EBITDA value of 1.2 to 1.3 trillion won, which was projected at last year’s Investor Day.
FCP stated, "Ginseng Corporation’s operating profit halved from 202.1 billion won in 2019 to 103.1 billion won last year, and it is expected to decline further this year," adding, "It is inherently illogical for a tobacco company to own a ginseng company."
KT&G promptly issued a statement saying, "FCP’s proposal to acquire Ginseng Corporation was unilaterally disclosed without any discussion with the company," and "We will thoroughly review the contents of the proposal letter going forward." It also emphasized, "The health functional food business operated by Ginseng Corporation is one of the company’s three core businesses alongside electronic cigarettes (NGP) and global CC (overseas cigarettes)," adding, "We announced a mid- to long-term future plan last year to foster this business and will do our best to achieve the goals."
With KT&G’s firm stance against selling Ginseng Corporation and overseas investors expressing doubts about FCP’s financial mobilization capabilities, industry insiders assess that the likelihood of an actual deal is slim. Hong Kong-based investment bank CLSA stated, "It is uncertain whether the activist fund has sufficient capital to pay 1.9 trillion won or genuine intent to acquire Ginseng Corporation," and added, "The possibility of KT&G accepting the acquisition proposal or the deal being completed is very low."
In the securities industry, it is analyzed that as KT&G is expected to announce a new shareholder return policy next month, FCP is using the acquisition proposal as an issue to highlight the undervaluation of Ginseng Corporation and to pressure KT&G’s board.
Previously, FCP argued that Ginseng Corporation’s value was not reflected at all in the stock price because it was a 100% subsidiary under a tobacco company, and since 2022, it has proposed that Ginseng Corporation be separately listed. Additionally, ahead of last year’s KT&G shareholders’ meeting, FCP filed an injunction requesting that the agenda include the 'spin-off of the ginseng business,' but the court ruled that separate listing was an 'unrealizable matter,' so it was not included on the meeting agenda.
Starting with the shareholder proposal for the spin-off, FCP intensified its offensive on KT&G’s management issues. Notably, earlier this year, it opposed the appointment of President Bang Kyung-man as KT&G’s CEO and sent a letter urging the National Pension Service, the third-largest shareholder, to actively intervene in the appointment process by exercising voting rights.
FCP also claimed that since 2001, current and former KT&G board members have donated about 10 million shares of treasury stock to foundations and funds free of charge instead of using them to enhance shareholder value through cancellation or sale, causing the company losses in the trillions of won, and recently filed lawsuits against them. Accordingly, FCP argued that outside directors recommended by shareholders, not the management side, should be included to monitor the management.
Regarding the recent acquisition proposal for Ginseng Corporation, FCP sharply criticized, saying, "If the board responds with 'blind opposition' as it did when the spin-off was proposed, it would be admitting that it is merely a rubber stamp for management rather than for shareholders." It further asserted, "Ginseng Corporation’s value is not reflected at all in the stock price as it is a 100% subsidiary under a tobacco company," and insisted, "Ginseng Corporation should be spun off or sold to find a new owner."
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