Hyundai knocks back activist investor Elliott but the war is far from over

Hyundai Motor was celebrating victory this morning. Its investors rejected a demand for the appointment of several new directors and a huge special dividend, tabled by the activist investor, Elliott Advisers, which has become a major thorn in the side of the South Korean conglomerate.

Paul Singer’s outfit may have pushed too hard when it came to the size of the Won7tn (£4.7bn) dividend it wanted. Hyundai has vast reserves of cash, but its profits have been in decline and the global outlook is cloudy for the motor industry. Given the latter, it’s perhaps understandable that investors baulked and opted for the company’s offer, even though it is worth less than a sixth of what Elliott was proposing.

It was on far firmer ground with its demand for a shake up in the boardroom to foster improved governance and greater accountability at the firm, one of the country’s famed family controlled Chaebol that have long dominated the South Asian nation’s vibrant economy. They have been facing criticism on a number of fronts, including the charge of taking minority investors for granted.

While this battle may have been lost Elliott’s war is far from over.

It won a dust up over a proposed ownership restructuring last year, which critics held was designed solely to benefit the Chung family, and cement its control.

The next one will come when a revised plan is submitted later this year. Hyundai only needed the support of 50 per cent of its investors to knock Elliott back over the dividend and board seats, and it was assisted by investors such as South Korea’s National Pension Service, the second biggest shareholder, falling in behind the Chung family.

A revised restructuring plan could require up to two thirds support to pass. Elliott should find that easier to win if it objects by aligning with other overseas investors. They hold about half the company.

I’ve been critical of the activists in the past. They can be of benefit to lumbering, underperforming companies with moribund boards that get stuck in the mud and are in need of a good jolt. But they can also cause a great deal of damage in their desire for a quick buck, leaving scorched husks behind them and longer term investors scratching their heads and wondering how it happened.

However, while its demand for a huge payout from Hyundai is debatable, Elliott’s call for improved governance sees it on the side of the angels. It's a sad fact that good corporate governance is an under rated virtue and it sometimes seems to require the movement of financial mountains to achieve it. Elliott is a rare outfit with the clout to make it happen when so minded.

Its activities are certainly being watched very carefully by other Chaebol for fear they’ll be next as investors in the country demand more influence, better returns.