Ahead of the regular annual shareholders' meeting season in March, shareholder activism is intensifying, and listed companies have begun to accept this and announce shareholder return measures. It is assessed that the results of activism are being seen.
The first results this year came from the first-generation Korean hedge fund, Quad Asset Management. Following the shareholder letter sent to Korea Electric Terminal by Quad Asset Management, the company announced a corporate value enhancement disclosure. In addition, asset managers and minority shareholder alliances are expected to engage in a fierce competition for votes at the regular shareholders' meeting as they make shareholder proposals to companies such as Coway and Millie's library.
Connector manufacturer Korea Electric Terminal announced a value enhancement disclosure on the 17th of this month and stated that it would expand the total shareholder return rate to 30% of its annual consolidated net profit by 2026 through stock buybacks and retirements. The company also plans to regularize communication with investors and shareholders.
In particular, Korea Electric Terminal received attention by announcing plans to incorporate its affiliate KT as a subsidiary by 2027. This was a request made by Quad Asset Management, which holds about 3% of Korea Electric Terminal's equity, through a shareholder letter last month.
Quad Asset Management has claimed that Korea Electric Terminal has been infringing on shareholders' interests by funneling business to KT. According to Quad Asset Management, 86% of KT's product purchases are generated from internal transactions with Korea Electric Terminal. In response, Quad Asset Management demanded the following from Korea Electric Terminal: ▲merger with KT ▲increase of the dividend payout ratio to over 35% ▲enhanced communication with shareholders.
Korea Electric Terminal decided to incorporate KT as a subsidiary rather than merging with it, and set the dividend payout ratio at 30%. Opinions have emerged that most of Quad Asset Management's demands have been accepted. A representative from Quad Asset Management noted, "The company also felt the need for change" and said that "a significant portion of the requested items has been accepted."
Millie's library, a subsidiary of KT, also received a shareholder proposal earlier this month. Millie's library responded on the 14th, saying it would "review the realization plans from various angles" and that it would take appropriate measures including whether to present the matter for the regular shareholders' meeting after legal review. Investors expect that Millie's library will soon accept the shareholder proposals and announce specific shareholder return plans.
The shareholder proposal was sent by Seoul Asset Management, a domestic asset management firm. It included ▲buyback and retirement of 50% of net profits from 2023 ▲amendment of the articles of incorporation to introduce advisory shareholder proposals ▲introduction of medium- to long-term shareholder return measures. Seoul Asset has a 1.75% stake in Millie's library, allowing it to exercise minority shareholder rights. Recently, discussions are underway with a minority shareholder alliance that amassed over 1% of equity.
Experts believe that Millie's library has established a foundation for enhancing shareholder value over the years. The company begun generating distributable profits by covering a loss of 88.5 billion won with funds secured from its IPO last year. Additionally, in the regular shareholders' meeting held last March, it amended its articles of incorporation to enable interim dividends.
Hwang Seong-min, a fund manager at Seoul Asset, stated, "We are currently discussing proxy voting with the minority shareholders' alliance, and we believe there is a high probability that it will be presented as an agenda item for the shareholders' meeting in mid-March."
In addition, this year, activist funds Align Partners and Singapore's Flashlight Capital Partners (FCP) are conducting shareholder activism campaigns against Coway and KT&G, respectively. Minority shareholder alliances from Lotte Shopping and Emart have also proposed the introduction of concentrated voting systems and improvements in governance.
In the securities industry, it is analyzed that there is a high likelihood of activist campaigns occurring in companies with low major shareholder equity and low shareholder return rates. According to IBK Securities, out of seven companies targeted by shareholder activism campaigns as of early February this year, six had major shareholder equity below 50%. Also, there were four companies whose shareholder return rate did not reach 30% in the previous year.
Kwon Sun-ho, a researcher at IBK Securities, stated, "Activist campaigns tend to occur more in value stocks than in growth stocks," adding that "the lower the major shareholder's equity, the more participation from minority shareholder alliances and institutional investors can increase the likelihood of agenda items being presented and approved at the shareholders' meeting."