Activist fund Alline Partners noted on the 16th that it has sent a public shareholder letter to Coway. Alline holds 2.84% (2,098,136 shares) of Coway's equity.
Alline explained, 'We have been conducting private discussions with Coway's management to enhance shareholder value, but had to inevitably shift to a public campaign following Coway's surprise announcement of its shareholder return policy on the 6th.'
Alline demanded responses from Coway's management regarding the expansion of shareholder returns and improvements in board independence. According to Alline, Coway's price-to-book ratio (PBR; market capitalization ÷ net worth) fell from 6 times on Dec. 30, 2019, when Netmarble signed an equity acquisition contract, to 1.5 times on Jan. 6 of this year.
Lee Chang-hwan, CEO of Alline, claimed, 'The key reason for Coway's undervaluation is the drastic reduction in shareholder returns.' He noted, 'When MBK Partners managed Coway, the shareholder return rate averaged 91%, but after Netmarble became the largest shareholder, it shrank to around 20%.'
On the 6th, Coway announced a shareholder return policy to raise the total shareholder return rate to 40% based on cash dividends and share buybacks. Alline welcomed the trend of expanding shareholder returns but believed it would be appropriate to raise it to levels similar to those during the management of MBK Partners. Alline explained that despite expanding dividends, it can maintain a net debt multiplier within 2 times relative to earnings before interest, taxes, depreciation, and amortization (EBITDA).
Alline also pointed out that the largest shareholder, Netmarble, holding only about 25% of Coway's equity while monopolizing the board by directly and indirectly appointing the chairman, CEO, and directors, is a problem.
The CEO claimed, 'As a strategic investor, Netmarble has no plans to sell Coway shares and has no incentive to raise the stock price. In fact, the lower the stock price, the cheaper it can expand its equity, leading to conflicts of interest among shareholders.'
Alline argued that Coway's board should implement measures to enhance board independence, such as introducing a cumulative voting system and appointing outside directors recommended by shareholders. Alline also questioned the board's stance on whether Bang Jun-hyuk, the chairman of Netmarble, who is the largest shareholder, concurrently serving as Coway's board chair, raises any conflict of interest issues.
Alline demanded that Coway's board respond to the shareholders' letter by the 3rd of next month. Coway stated regarding this, 'We are working on various value-up plans aimed at maximizing shareholder value and will announce them soon.'