Activist Investor Demands Restructuring of Korean Tobacco Giant KT&G

Date:

  • News by AUN News correspondent
  • Tuesday, October 25, 2022.
  • AUN News – ISSN: 2949-8090

Summary:

  • According to FactSet, the company is worth around $8.5 billion.
  • The letter stated that Flashlight Capital is pushing for “heat-not-burn” goods to represent at least 50% of KT&G’s total tobacco income by 2027, noting the growth of substitute tobacco products.
  • The benchmark Kospi index for South Korea has fallen by 25% during the past year, while KT&G’s shares have increased by 13%.
  • Flashlight Capital demands that KT&G sell non-core operations, improve corporate governance and treble the size of its share repurchase program.
  • According to FactSet, Flashlight has the Vanguard Group Inc., First Eagle Investment Management LLC, and BlackRock Inc. BLK 4.01%increase as investors.
Source: AUN News

According to the letter seen by AUN News, an investment firm created by a former Carlyle Group Inc. executive has bought a small position in a South Korean tobacco conglomerate and is advocating for corporate restructuring and the separation of its ginseng business which is gaining popularity in South Korea as Activist Investor Demands Restructuring.

From 2011 to 2019, Sanghyun Lee led Carlyle’s CG 5.13%increase; green up pointing triangle head of Korea. Currently, Lee is the CEO of activist investment firm Flashlight Capital Partners Pte. Ltd., based in Singapore. According to those who know the situation, it has amassed an approximately 1% interest in KT&G Corp., 033780 1.82%increase; green up pointing triangle.

Korea Tobacco & Ginseng

Over the previous six months, the leadership of KT&G, formerly known as Korea Tobacco & Ginseng, has engaged in confidential conversations with Flashlight Capital, according to the letter from the investment company. According to FactSet, the company is one of South Korea’s most prominent tobacco retailers, with a market valuation of around $8.5 billion.

In addition to manufacturing and selling ginseng, a natural root used in food and medicine, KT&G also owns the Esse and Raison cigarette brands. The company’s founding as a state-run tobacco manufacturing occurred in 1883, marking the beginning of the company’s history. After being privatized in 2002, it is now a global corporation with sales of the equivalent of $3.6 billion in the most recent fiscal year.

The benchmark Kospi index for South Korea has fallen by 25% during the past year, while KT&G’s shares have increased by 13%. The letter from Flashlight Capital noted that the company’s share price is currently very similar to where it was 15 years ago. It was also mentioned that KT&G trades at a significant discount to its competitors and the overall market.

Activist Investor Demands Restructuring: “Heat-not-Burn”

The letter stated that Flashlight Capital is pushing for “heat-not-burn” goods to represent at least 50% of KT&G’s total tobacco income by 2027, noting the growth of substitute tobacco products.

The investing company also requests that KT&G separate its ginseng business from its primary tobacco business to maximize the former’s value and expand it internationally. It said: “From our standpoint, it defies the sense that a tobacco company controls a ginseng company.

In the letter, Flashlight demanded that KT&G sell non-core operations, including its real estate development division. Along with improving corporate governance issues, it wants the corporation to treble the size of its share repurchase program.

Additionally, KT&G is being urged by Flashlight Capital to prioritize “heat-not-burn” tobacco above its cigarette business.

Activist Investor Demands Restructuring
Source: AUN News

AUN News PHOTO

In 2006, activist billionaire Carl Icahn and other investors urged the Korean corporation to expand its ginseng business, increase its dividend, buy back shares, and sell real estate. Following the company’s adoption of several of his recommendations, Mr. Icahn eventually made money from his investment.

According to the letter and the people who know the situation, Flashlight Capital requests that KT&G appoint shareholders’ nominees to the board. These nominees will have experience in the capital markets, operational knowledge, and public business board experience.

According to those with knowledge of the situation, both the investment management company Oasis Management Co. Ltd. and the hedge fund manager Whitebox Advisors LLC own shares in KT&G.

An Oasis spokesman stated in a statement received through email that “we feel there is tremendous upside in KT&G’s company for all stakeholders.”

According to FactSet, KT&G also has the Vanguard Group Inc., First Eagle Investment Management LLC, and BlackRock Inc. BLK 4.01%increase; green up pointing triangle as investors.

Analysis by: Advocacy Unified Network

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