Yahoo Finance K-Pop Battle Awakens New Wave of Shareholder Activism in Korea
(Bloomberg) -- Years after Paul Singer’s Elliott Management Corp. launched bitter battles against Samsung and Hyundai Motor, South Korea is warming to a new face of shareholder activism — one that’s local, vocal and young.
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Hybe Co., the label behind boyband sensation BTS, has made a partial tender offer for SM Entertainment Co., another big K-pop agency. A homegrown investor activist, Align Partners Capital Management Inc., says Hybe should pay more and buy the entire company.
SM’s shares have climbed above the offer price, indicating investors are listening — and expect a better bid. It’s the latest example of how shareholder activism is on the rise across Asia, but what’s different is its protagonists are millennials steeped in the local culture who are using that knowledge to take on the old guard.
“In the past, shareholder activism was driven by foreign activists such as Carl Icahn and Elliott,” said Namuh Rhee, an adjunct professor at Yonsei University who previously worked for Nomura Holdings Inc. and Merrill Lynch. “It’s now driven by local activists who publish their proposals on their websites in Korean.”
SM is one of about a dozen companies that have become activist targets in the country this year. While campaigns often failed in the past, this time funds have helped push up the shares of several companies, including SM and dental equipment maker Osstem Implant Co.
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Align, which owns about 1% of SM Entertainment, has already won some concessions from the talent agency, including getting it to sever ties to retired founder Lee Soo-man. And SM’s stock has soared about 60% this year amid the saga.
Just a few years ago, US billionaire Singer was depicted as a vulture in a controversial Samsung unit cartoon in 2015 amid his effort to block a merger of two group companies. His campaign for reform at auto giant Hyundai Motor in 2019 was also fraught with difficulty.
“The Korean media sort of demonized them as greedy foreign investors attacking Korean companies,” said Lee Changhwan, Align’s chief executive officer. “Now people have better understanding.”
The 37-year-old, who started Align after stints at Goldman Sachs Group Inc. and KKR & Co., has built a team of mostly millennials born in the 1990s. While arguing that Hybe should improve its hostile offer for SM, he is also seeking shareholder approval after being named to SM’s board.
Kate Lee, a 32-year-old vice president at Align, said the Elliott-Samsung battle and a series of corporate scandals in the nation led her to want to find a new way to address corporate governance problems and disadvantages faced by minority shareholders.
“We are young, so we might not take the same old conservative approach,” she said.
There were 56 activist campaigns in South Korea last year, up from 38 in 2021, according to data from Diligent Corp. In the years from 2013 to 2020, the number only passed 10 once.
A boom in retail trading since the pandemic has played a part in growing acceptance of activism. Many young new investors bought not only local stocks but also high-profile companies including Tesla Inc. in the US where shareholder campaigns are more common.
Taking a cue from peers overseas, Korean individual investors have at times banded together to champion causes, such as a ban on short-selling. Major companies have taken note of their growing clout, with Samsung opening its quarterly earnings calls to retail traders.
Another boon for activists has been government efforts to support the position of minority investors. Its goal is to curb the excessive influence of corporate founding families in order to boost low Korean stock valuations and help win developed-market status from index provider MSCI Inc.
Not that it’s all been smooth sailing for activist campaigns of late. KT&G Corp.’s shares have underperformed this year after it rejected a proposal from an activist fund. Financial stocks that rallied amid Align’s call for better shareholder returns fell back after South Korean President Yoon Suk Yeol said banks should rather share profit with people who need it.
The successes that have been seen may be encouraging further action, as news of smaller investors pressing demands piles up. A local media report said last month that a group of minority shareholders submitted a letter to chipmaker DB Hitek Co. seeking dividends and election of an external board member.
“There was hostile sentiment toward foreign capital and people didn’t know well about activists, but now they are more comfortable and more aware,” Professor Rhee said.
--With assistance from Abhishek Vishnoi.
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