Domestic activist private equity fund Align Partners proposed a focused voting system for Coway. Earlier this year, it urged Coway to enhance its capital structure efficiency and board independence but received no response. This move is interpreted as Align Partners' strategy to get its preferred candidates onto the board through the focused voting system.
On the 6th, Align Partners sent a shareholder proposal to Coway's board regarding four agenda items: ▲ amendments to the articles of incorporation to introduce a focused voting system ▲ increasing the number of directors from the current 7 to 8 ▲ appointing Commissioner Lee Nam-woo as an outside director ▲ appointing Commissioner Lee Nam-woo as a member of the audit committee.
A focused voting system is a system that grants shareholders voting rights equal to the number of directors to be appointed at the shareholders' meeting. If five directors are to be elected, shareholders can cast five votes per share. This allows for the possibility of pooling all votes on one candidate, enabling a less significant equity holder to push a preferred candidate into the board.
Last year, Align Partners appointed Kim Gi-seok, CEO of Crowdy, and Lee Hee-seung, director of Leading Ace Capital, as outside directors through the focused voting system at JB Financial's general meeting. It seems Align Partners will adopt the same strategy for Coway as it did with JB Financial. Lee Nam-woo, whom Align Partners is pushing as an outside director for Coway, is the chairman of the Korea Corporate Governance Forum.
Align Partners stated that despite Coway being the number one consumer goods rental company in South Korea, it has not been properly valued in the stock market and declared a campaign earlier this year. In fact, Coway has been consistently breaking its record for maximum sales and earnings before interest, taxes, depreciation, and amortization (EBITDA) every year, yet since the acquisition of Netmarble's equity in 2020, its stock price has been 44 percentage points lower than the market yield.
In response, Align Partners proposed a target capital structure policy focused on maintaining an appropriate multiple of net debt to EBITDA. They also noted the conflict of interest between the current largest shareholder, Netmarble, and general shareholders, and called for measures to enhance board independence to alleviate this conflict. According to Align Partners, Coway indicated that a response regarding the proposal might be included in its corporate value enhancement plan to be announced in the first quarter of this year.
Align Partners said, "As a long-term investor, we will not make any shareholder proposals related to shareholder returns and capital allocation policies at this regular general meeting to give Coway the opportunity to voluntarily present an effective value-up plan." However, they warned, "If the corporate value enhancement plan does not include a satisfactory level of shareholder value improvement measures, we will take additional actions as shareholders."