Whitebox’s latest letter attempts to foil LG spinoff

Whitebox Advisors is attempting to halt a spin-off of South Korea-based LG Corp.’s subsidiaries via a letter to the board of directors citing a lack of value creation for company shareholders. The $5.5 billion Minneapolis-based hedge fund firm widely publicized its effort despite having perhaps less than a 1% stake in the company, as reported by The Korea Times. The Koo family, which controls LG, wants to spin-off certain of LG’s subsidiaries into a new group that would be controlled by Koo Bon-joon, the uncle of former LG chairman Koo-Bon moo. LG is known worldwide for its electronics, chemicals, and telcomm products. The subsidiaries involved in the proposed spinoff are: LG Hausys (a building and industrial materials supply company), LG MMA (chemical manufacturing), Silicon Works (semiconductor R&D), and LG International & Pantos (sea and air freight servicing). Together, these components of the spin-off amount to about 2% of the net asset value of the parent corporation. Also, the new holding company dubbed NewCo would receive 9% of LG’s cash balance. The decision is bound up with Koo family genealogy. This is, in fact, one of the points that Whitebox Advisors urges as a grievance: the decision is a matter of family politics, regardless of the interests of non-family shareholders. The former chairman and CEO, Koo Bon-moo, died of a brain tumor on May 20, 2018. As has been the family tradition, his son, Koo Kwang-mo, took the reins. So whatever else would be the merits of the spin-off, it would give Koo Bon-moo’s younger brother, Koo Bon-joon, LG’s vice chairman, a kingdom of his own, without any violation of primogeniture. Koo Kwang-mo is the largest shareholder of LG with a 15.65% stake, followed by Bon-joon at 7.57% NewCo is not being sold. Existing shareholders are simply being provided with shares in the two split companies in equal proportions in accord with the spin-off ratio. The board has said that minority shareholders are at no risk off loss from the spin-off. Whitebox’s letter, signed by Whitebox’ head of equity, Simon Waxley, replied, though, that “the Spin-Off will inevitably bring qualitative changes to the substance of the shareholders’ rights and have an actual impact on the shareholder status”. Waxely, who opened Whitebox’s London office in 2012, also put the spin-off into the broader context of the widening gap between the company’s equity valuation and the value of its underlying assets. The latter has had a very good year in 2020. One of the major listed subsidiaries not being spun off, LG Chem, has seen its share price rise 160%. Meanwhile, the parent has profitably disposed of buildings in China and a 35% stake in LG CNS. But with all that the share price of LG is up only 9%. “This means that despite the extremely strong underlying performance of the Company’s assets, LG’s minority shareholders have barely profited,” Waxley wrote.

Whitebox’s latest letter attempts to foil LG spinoff

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