KT&G: Icahn’s Courtroom Battle

On March 9, DeRyook International Law Firm and Evergreen represented Carl Icahn, while KT&G’s lawyers were from Saenal Legal Office, Shin & Kim (Sejong), and Sojong Partners.

After an introduction of the attorneys, the arguments began. Then Icahn’s attorney, Song Hyun-woong of Evergreen, stood up first. “If stockholders exercise their right of shareholder’s proposal under business law and recommend three outside executives, company statute allowing, the company must prepare at least three seats, and put it on the agenda at the stockholder’s meeting,” Song said. “KT&G arbitrarily revised the suggestions put forth by the stockholders, thereby infringing on the rights of the shareholder’s proposal.”

KT&G’s attorney Shin & Kim’s (Sejong) Yim Joon-ho spoke next. “The plaintiff (Icahn and his allies) requested that we select the directors without distinguishing between inspection commissioners and ordinary outside directors. But now, he is saying that directors must be selected through cumulative voting (straight voting). This is nonsense. There is no problem in selecting inspection commissioners and ordinary outside directors separately (separate voting).”

Business Law or Securities Law?-

The two sides’ arguments are as follows. Icahn’s team recommended three candidates to fill three of six outside director seats whose terms expire at the end of the month. However, KT&G board of directors decided to select four inspection commissioners and two ordinary outside directors, which means that the most seats Icahn’s men can get is two.

Icahn’s group suggested selecting six outside directors, then dividing them into inspection commissioners and ordinary outside directors. Icahn’s team stressed the right of shareholder’s proposal in business law.

KT&G’s team pointed out that according to securities law, Icahn’s team must have owned over 0.5% of the stock for over six months in order to exercise right of shareholder’s proposal, a condition Icahn’s team does not fulfill.

Icahn Offers 70,000 Won per Share-

On the day of the hearing, the “Icahn Alliance” consisting of 4 funds, including Icahn Partners LP and Steel Partners II LP, made a new offer to KT&G, to start negotiations at 70,000 won per share. This is 10,000 won higher per share than what was previously offered. Icahn said, “We are ready to invest at least $2 billion (approximately two trillion won). But this is not a takeover bid.” He added firmly, showing that he may just be trying to pressure KT&G.

The decision will be announced on March 14. If Icahn’s team wins, outside directors will not be voted on at the shareholder’s meeting on March 17, but will be discussed in the future. If KT&G wins, two ordinary outside directors will be elected as planned.

After the hearing, Song said, “I believe we sufficiently conveyed our position.” Yim said, “It was a fierce battle of the minds. We did our best, so now we will just have to wait for the outcome.”

Sang-Soo Kim Chang-Won Kim ssoo@donga.com changkim@donga.com