A bitter row appears to be unfolding with a proposed restructure of LG Group, which has a multi-tiered business including LG Electronics and LG Display, with observers claiming LG is making a significant transition from a consumer electronics business to an automotive electronics provider.
A US-based hedge fund Whitebox Advisors has launched an activist campaign to halt a planned spin-off by LG Corporation, one of South Korea’s family-owned conglomerates, saying it was approved by the board “to resolve a family succession issue”.
A similar move over at Samsung has resulted in 11 Samsung executives being charged after prosecutors claimed that they engaged in practises aimed at helping jailed Samsung heir Lee Jae Yong who was recently sentenced to two years and six months in prison by a high court in South Korea. The trial is about the process by which he inherited managerial control over the conglomerate from his father.
Whitebox Advisors, which has $5.5bn under management, said LG’s decision to spin off a collection of affiliates in a new holding company was motivated by a desire to help a member of the founding family start his own business rather than to create value for shareholders.
Currently market experts and advisory institutions are releasing their assessments of the restructuring plan, which the group says it has had in the works since the leadership change in 2018.
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LG Corp., the current holding company of LG Group, announced in November that the group would spin off five subsidiaries. The plan is subject to final approval from shareholders.
If shareholders approve, the new entity will be launched May 1 and will be headed by Koo Bon-joon, uncle of the incumbent LG Chairman Koo Kwang-mo, who has succeeded the late Chairman Koo Bon-moo.
“The decision to proceed with the spin-off reflects poorly on corporate governance,” the firm wrote in a letter to the company’s board seen by the UK Financial Times.
“Despite clearly favourable alternatives, the board has unanimously approved a plan that, in our view, sacrifices minority shareholder return in order to resolve a family succession issue.”
LG announced in November it would spin off five affiliates into a new holding company that will be led by Koo Bon-joon, who ran the LG Electronics subsidiary for six years from 2010 and was vice-chairman of LG Corporation for three years after that.
LG has a history of spinning off units — giving rise to what today are the GS, LIG and LS groups. Spinning off units and creating new holding companies are practices that foreign shareholders view as typical methods of sharing assets among the children of chaebol families in Korea.
But LG says the restructuring plan is based on the group’s “select and concentrate” strategy and would create a win-win situation for both shareholders and the affiliates.
Since the announcement of the spinoff Nov. 26 last year, the market caps of the three listed firms LG International, LG Hausys and Silicon Works surged 36 percent from 2.3 trillion won ($2 billion) to 3.1 trillion won as of Tuesday.
The share price of LG International, which would be the central unit of LX Holdings, skyrocketed nearly 50 percent. Silicon Works’ price has also soared over 50 percent.
After the spinoff, LG Corp. plans to enhance its shareholder return policy and carry out about 1.8 trillion won worth of investments in artificial intelligence, big data, 5G and health care, it said.
The company is also eyeing mergers and acquisitions to discover new growth engines.
One of the major plans is to list battery maker LG Energy Solution on the securities market within the year. Its initial public offering valuation is estimated at 100 trillion won.
LG Electronics who currently sell TV’s and appliances is set to make a foray into the growing electric vehicle and future automobile market in May with the with the launch of the LG Magna Powertrain, contributing to the group’s overall growth.
Back in 2020 LG Electronics and Magna International, announced a joint venture to manufacture e-motors, inverters, and on-board chargers and, for certain automakers, related e-drive systems to support the growing global shift toward vehicle electrification.
The new company, tentatively called LG Magna e-Powertrain, marries Magna’s strength in electric powertrain systems and world class automotive manufacturing with LG’s expertise in component development for e-motors and inverters, accelerating both partners’ growth in the electric powertrain market.
