Icahn Could Get One KT&G Director

Who will win?

A power struggle between foreign investors and a domestic company will take place on March 17. The attackers are “Icahn and allies,” including US corporate raider Carl Icahn, and the now privatized Korea Tobacco and Ginseng (KT&G) on the defense.

A vote battle will take place with the director assignment on the agenda at a shareholders’ meeting this day.

Icahn is such a master at hostile mergers that even Wall Street acknowledges him. Moreover, Institutional Shareholder Services (ISS) and Glass, Lewis & Co., global institutions on agenda analysis for shareholders’ meetings, showed support for Icahn’s team. Consequently, KT&G’s worries are deepening as it seems highly likely that a significant number of foreign shareholders, taking up 63 percent of the company’s total shares, will side with Icahn and his allies.

Icahn and his forces, comprised of four hedge funds, including Icahn Partners and Steel Partners, bought 6.6 percent of KT&G stock from late last year to early this year and announced it would participate in the company’s business management.

Since then, Icahn and his allies began intervening in KT&G management in earnest with the aim of increasing stock prices. They demanded support measures for stock price increases, including a public offering of KT&G’s affiliate Korea Ginseng Corp., sales of its real estate and the buyback of its shares. They also recommended three non-Koreans as outside director candidates.

KT&G’s board consists of three registered inside directors and nine outside directors. It seems Icahn and allies are aiming to become familiar with the company’s business situation by planting an outside director in KT&G.

Of the six outside directors appointed at the meeting on March 17, four will be on the audit committee and two will be categorized as regular outside directors.

There are five candidates total in the running for the general outside director post, with three from Icahn’s side and two from KT&G. The directors will be selected by a voting system that awards the posts to the two candidates, out of the five, that win the most votes.

If both sides wage a voting war, it is highly likely that Icahn and KT&G will each succeed in securing one general outside director post.

KT&G Chief Executive Kwak Young-kyoon said, “Friendly shares toward the company amount to about 40 percent (25 percent domestic and 15 percent foreign), while shares siding with Icahn amount to 35 percent,” at a press conference on March 8. He added, “One outside director from Icahn is no threat to management rights.”

But analyst Jung Sung-hoon of Hyundai Securities said, “Even if just one outside director in KT&G’s board is from Icahn’s side, the company will feel pressured as issues that were just hinted at from the outside will be demanded from the inside.”

Measures to Defend Managerial Rights Needed-

Complaints that, “We are helpless against foreign investors’ bids to gain managerial control because there is no appropriate means of defense” are being voiced by the business community. But the government has been stating it has no intention of introducing new measures to protect corporate managerial control.

However, as the KT&G affair heats up, there are signs that the government may change its stance. Fair Trade Commission Chairman Kang Chul-gyu, who used to say, “The KT&G issue is proof that the market is functioning well,” said recently, “We need additional measures toward foreign investors that try to take over management of mainstay industries or companies representing Korea.”