Elliott Discloses Letter to Shareholders of Hyundai Motor Company

HONG KONG–([1])–Elliott Advisors (HK) Limited, which advises various Elliott-affiliated
funds (together “Elliott”), today publicly issued a letter to all
shareholders of Hyundai Motor Company (“HMC” or the “Company” 005380:KS).

In the letter, Elliott detailed the case for the shareholder resolutions
that it has put forward for consideration at the Company’s Annual
General Meeting on March 22, 2019. These resolutions are designed to
both transform governance and right-size the Company’s over-capitalized
balance sheet.

The letter comes one day after Elliott disclosed a letter to all
shareholders of Hyundai Mobis Co., (“Mobis” 012330:KS), which detailed a
similar set of resolutions.

Both letters to shareholders can be found at: http://www.acceleratehyundai.com[2]

Text of the full letter to Hyundai Motor Company can be read below:

28 February 2019

Dear Fellow Shareholders of Hyundai Motor Company,

We write this letter in our capacity as significant shareholders of
Hyundai Motor Company (“HMC” or the “Company” 005380:KS). In addition to
our investment in HMC, we are also significant shareholders of Hyundai
Mobis Co., (“Mobis” 012330:KS), as well as Kia Motors Corporation (“Kia”
000270:KS), which collectively with HMC are referred to herein as
“Hyundai Motor Group,” “HMG” or “the Group.”

Yesterday, we sent a letter to our fellow shareholders of Hyundai Mobis
detailing the case for the shareholder resolutions we have put forward
for consideration at the Mobis Annual General Meeting (“AGM”) on 22
March, 2019.1 These resolutions aim to address the serious
governance and balance-sheet issues at Mobis that have contributed to
its persistent and meaningful underperformance.

Today, we write as one of the largest independent shareholders in HMC to
make the case for a similar set of resolutions. Like Mobis, HMC has
fallen short in its treatment of shareholders due to its retention of
substantial excess capital and a lack of independence and accountability
on its Board. However, unlike Mobis, and to our significant
disappointment, HMC has refused to take even the kinds of small but
incrementally positive steps forward taken by Mobis on capital return
and governance.

Instead, HMC has offered less than zero. Yesterday, the Company unveiled
a plan that fails to include any meaningful steps to remedy its
balance-sheet overcapitalization, while at the same time proposing Board
changes that appear to exacerbate its governance shortcomings.

For these reasons among others, we believe that the resolutions we
put forward for consideration at the HMC Annual General Meeting (“AGM”)
on 22 March 2019, which are similar to the ones we put forward at Mobis,
are more urgently needed than ever.
These resolutions are as follows:

  • Shareholder Resolution A (Agenda No. 1-2-2):
    The approval of financial statements for FY2018 at HMC that reflect
    dividends of KRW4.5 trillion for common voting shares of HMC,
    representing KRW21,967 per share. If passed, shareholders would
    receive a one-time dividend equivalent to 17% of HMC’s current stock
  • Shareholder Resolution B (Agenda No. 2-9):
    The establishment of Compensation and Governance Committees at HMC.
  • Shareholder Resolution C (Agenda No. 3-1-4,
    3-1-5, and 3-1-6)
    : The nomination of three (3)
    highly qualified independent director candidates (the “Independent
    Shareholder Nominees”).
  • Shareholder Resolution D (Agenda No. 4-3,
    4-4, and 4-5)
    : The nomination of the Independent
    Shareholder Nominees for the Company’s Audit Committee.

As HMC shareholders, your support for these resolutions is vital to
our shared goal of improving the governance and performance of the
Company that we all collectively own.

We are therefore asking today for all shareholders to support these
landmark resolutions, which are designed to both transform governance
and right-size the Company’s overcapitalized balance sheet.


Nearly a year has passed since HMG withdrew its restructuring plan. Over
the past year, along with many of our fellow shareholders, we have
expressed publicly and privately the need for a more comprehensive plan
that seriously and expeditiously addresses the governance and
capital-management issues responsible for the Company’s continued
share-price underperformance.

The problems facing HMC are well-known but important to highlight in the
absence of sufficient corrective action from management. HMC continues
to underperform significantly (by 61% vs. the KOSPI and 43% vs. its
peers in the last five years), and as a result, has seen a considerable
amount of shareholder value destroyed. Company valuation remains
meaningfully depressed, trading at a remarkable discount of up to 82%
vs. KOSPI and up to 46% vs. peers.

Over the past year, we have sought to enter into constructive dialogue
with the Board to find common ground to resolve these issues. Informed
by exhaustive research, expert analysis and, importantly, extensive
dialogue with other stakeholders, our emphasis has been to advise
management at HMG and HMC to take action on the following critical
issues to rectify the Company’s persistent underperformance:

  • HMG and HMC must return substantial excess capital to shareholders.
    As identified in Conway MacKenzie’s Independent Analysis, both HMC and
    Mobis have net cash positions that vastly exceed their respective
    peers. HMC’s net cash balance of KRW 14.3 trillion as of 2018 far
    exceeds auto peers by KRW 8-10 trillion. Affiliates of HMG have been
    mismanaging these funds, investing in questionable projects that have
    only heightened the alarm and frustration of shareholders as well as
    the markets.
  • Corporate governance at HMG and HMC must be brought in line with
    international best practices.
    New independent directors are needed
    in HMC’s boardroom to provide diversity, depth of experience, and
    fresh perspectives to the Company’s decision-making processes. The
    Audit Committees in particular are in need of greater independence. At
    the same time, establishing new Compensation and Governance Committees
    would improve the alignment between HMC’s Board and its shareholders
    now and into the future, allowing HMC to attract the independent
    talent befitting a global Company of its stature.

While it has always been our strong preference to engage proactively
with the Group’s management and advisors in an effort to advance
solutions, our efforts at dialogue only recently gave way to
constructive exchanges. Although these exchanges did not produce the
results we hoped for at HMC, we did work tirelessly in an attempt to
build consensus and find pathways forward that would properly address
the balance sheet and governance problems preventing HMG and HMC from
realizing their full potential.

HMC 2019 Annual General Meeting Agenda

Given the extensive degree of engagement and the progress made with
Mobis, we had been hopeful that HMC leadership would seize the
opportunity to improve both its governance and its balance-sheet
management. Unfortunately, yesterday’s announcement was a disappointment
on both fronts, given that the Company made no serious effort to address
capital return and actually took steps backward on governance.

Absent any proactive shareholder-return policies such as share buyback
plans, we believe that the Company’s net cash balance of KRW14.3
trillion is excessive and must be reduced. While management proposed an
aggressive KRW45 trillion of R&D spend in the next five years, it failed
to provide a convincing argument that when it comes to returns on such
spending, the future will be different from the past: HMC’s poor track
record in capital deployment has resulted in an industry-low ROE of 2.2%
as of 2018 and a valuation of just 0.4x P/B.

In addition to missed opportunities in the area of capital return, HMC
also fell short in addressing its governance problems. HMC’s proposed
independent directors appear to lack the proper experience and fresh
perspectives that are urgently needed at the board level. In fact, the
candidates put forward by the Company, with backgrounds primarily in
finance and academia, offer significant overlap with the backgrounds of
the existing Board members. Furthermore, the Company seems unwilling to
increase the ratio of outside to inside directors, capping the number of
independent directors at only three. This arbitrary cap will limit
progress on improving independence and diversity, and it is not in
keeping with international best practices.

Fortunately, shareholders will be able to support superior alternatives
when it comes to improving capital allocation and governance at HMC.
Elliott’s resolution regarding the payment of a special dividend would
return excess capital to shareholders, who can allocate it to
higher-return opportunities. At the same time, the Independent
Shareholder Nominees that Elliott has proposed offer three highly
qualified and independent candidates who can significantly enhance HMC’s
Board with their global and diverse board experiences. Each of these
nominees is a business leader with a proven track record in his or her

Shareholders have an opportunity at HMC’s upcoming AGM to deliver
sustainable solutions that fundamentally address the Company’s problems.
We believe that our proposed shareholder resolutions are essential to
restoring shareholder confidence at HMC.

Shareholder Resolutions in Detail

We are urging all HMC shareholders to send a clear and compelling
message to the Board, and to help drive the necessary reforms at HMC, by
supporting the following resolutions at the AGM planned for 22 March

Shareholder Resolution A (Agenda No. 1-2-2): The Payment of Dividends

HMC is severely overcapitalized as compared to peers. Maintaining the
excess capitalization comes at a real cost to shareholders, with the
Company’s ROE deteriorating to an industry low of 2.2% in 2018.

HMC’s management mistakenly believes liquidity needs can only be met by
readily available cash on balance sheet.2 While we understand
the Company’s desire to hold some level of reserves for contingency and
working capital requirements, we also note that HMC continues to
generate meaningful free cash flow. Maintaining trillions of won as cash
on balance sheet for future unknown M&A is poor stewardship of capital
given the significant opportunity cost. We are also not alone in noting
the irony in reserving trillions of won for future shareholder return,
given that the Company is refusing to return excess capital to
shareholders today.

We also recognize the Company’s need to invest in R&D. However, we
remain unconvinced that management’s investment roadmap detailing KRW45
trillion of spend over the next five years is prudent planning. Given
the significant step up in expected R&D spend, shareholders deserve more
than the sparse details provided today. We remain skeptical as to
whether the incremental investments will offer returns above cost of
capital given HMC’s poor investment track record, as well as the Group’s
history of investing in non-core projects.

Elliott therefore proposes that shareholders approve financial
statements for FY2018 at HMC that reflect dividends of KRW4.5 trillion
for common voting shares of Mobis, representing KRW21,967 per share and
17% of the share price

This plan would still leave over half of the excess capital on
the balance sheet of HMC while beginning the process to bring its net
cash level in line with industry peers. Combined with HMC’s strong free
cash flow generation, the remaining net cash balance will be more than
sufficient for cash reserve and future investment needs.

Absent any proactive return of excess capital to shareholders via
buybacks or other means, our shareholder resolution is necessary to
optimize HMC’s balance sheet.

Shareholder Resolution B (Agenda No. 2-9): The Establishment of
Compensation and Governance Committees at HMC

Two new sub-committees will champion shareholder rights and corporate

We seek to create two sub-committees in the articles of incorporation of
HMC: a Director’s Compensation Committee and a Corporate Governance &
Communication Committee, by amending articles of incorporation of the
Company. These are standard sub-committees common already to most Korean
and international companies, yet are conspicuously absent from the
Company’s current corporate constitution.

  • A Director’s Compensation Committee
    would establish compensation schemes that are transparent and
    commensurate with directors’ experience and performance, aligning with
    domestic and international best practice. Crucially, the committee
    would also ensure independent directors were not financially punished,
    by ensuring their compensation was properly aligned with the market.
  • A Corporate Governance and Communication
    already exists, but hasn’t yet been formally
    incorporated into the Company’s AOI. The Committee would protect the
    corporate value of HMC as well as the interests of the shareholders in
    the long term.

We therefore urge shareholders to join us in supporting the creation
of these two sub-committees as an essential step forward in improving
corporate governance at HMC.
We would envision that the new
Independent Shareholder Nominees would also serve on these new
committees to ensure independence and accountability.

Shareholder Resolution C (Agenda No. 3-1-4, 3-1-5 and 3-1-6): The
Nomination of Highly Qualified Independent Director Candidates

HMC shareholders deserve to be represented by truly independent
directors with global board and in-depth industry experiences.

Elliott has nominated three independent directors at HMC with
significant and relevant industry experience. The addition of these new
directors would grow HMC’s Board to 11 from the current 9. These
independent directors will represent all shareholders.

The three nominees for HMC we are nominating are (see Appendix A):

  • Dr. John Liu: an accomplished engineer and a global technology
    executive with extensive experience in executive and board roles for
    multinational public companies.
  • Randal (“Randy”) MacEwen: President and CEO of Ballard Power
    Systems, a US- and Canadian-listed developer and manufacturer of
    innovative fuel cell products for mobile and stationary applications.
  • Margaret (“Peg”) Billson: an engineer and business leader with
    more than three decades of executive and board experience at large,
    complex industrial and transportation companies.

We strongly disagree with HMC limiting the number of independent
directors to three. Shareholders deserve a fair choice in the board
members that will best serve their interests.

Shareholder Resolution D (Agenda No. 4-3, 4-4 and 4-5): The
Nomination of the Independent Shareholder Nominees for the Company’s
Audit Committee

Effective independent leadership is vital in keeping management
focused while avoiding further financial mismanagement and irresponsible
investment behavior.

HMC’s audit committee is required by law to perform key roles in
ensuring that the Board fulfills its fiduciary responsibilities. It also
oversees the Company’s financials and directors’ performance of duties,
and investigates, where necessary, illicit financial behavior on the
Board and within management.

It is therefore extremely important that the audit committee be
comprised of truly independent members, dedicated to conducting their
roles in an unbiased and transparent manner while remaining faithful to
all shareholders.

We therefore urge shareholders to join us in supporting three of the
Independent Shareholder Nominees to serve on the audit committee.

* * * *

By right-sizing the balance sheet and adding diverse and independent
directors to allow for proper shareholder accountability, HMC can
fulfill its true potential as an industry leader and financial steward.

As ever, we remain open to ongoing dialogue with the Company,
specifically on capital allocation and governance. Should new solutions
be offered that adequately address the scale of the balance-sheet and
governance issues at HMC, we would consider amending our resolutions. As
things stand, however, we strongly believe that these reforms are
necessary for the safeguarding of the Company’s future prosperity.

We urge our fellow shareholders to support these resolutions, and we
remain available to discuss our proposals and approaches in further


Elliott Advisors (HK) Limited

* * * *

Appendix A

Biographies of Elliott’s Independent Director Nominees

Elliott Proposed Independent Nominee:

Dr. John Liu

Dr. John Liu is an accomplished engineer and global technology
executive with extensive experience in executive and non-executive roles
for multinational public companies.

  • Over the last 10 years, Dr. Liu has served as the Group Vice President
    of Wanda Group and COO of its Internet Technology Business, was the
    Chief Business Officer of Qihoo 360 and was the President of Google in
    China. In these roles, he led the digitation, automation and Internet
    of Things transformation and partnership strategies with key
    stakeholders across the Americas, Europe and Asia.
  • Prior to that, Dr. Liu was the CEO of SK Telecom China and led the
    company’s investment and joint-venture relationships with key
    corporate and government stakeholders from 2007 to 2012.
  • Dr. Liu has been an Independent Director at the e-commerce company of
    the Hong Kong-listed China Eastern Airlines (2014 to 2018) and
    UK-listed ARM Holdings (2014-2016). He is currently an Independent
    Director and the Chairman of the Remuneration Committee of Hong
    Kong-listed Digital China Holdings.
  • Dr. Liu has a PhD from the Technical University of Denmark and a
    Bachelor’s Degree from Beijing Normal University, where he is
    currently on the Board of Trustees and the Chairman of the Investment
    Committee of the Education Fund for Beijing Normal University.

Elliott Proposed Independent Nominee:

Randy MacEwen

Randy is seasoned sustainable energy executive with a deep passion
and extensive experience in transformative energy technologies.

  • He is currently the President and CEO of Ballard Power Systems, a US-
    and Canadian-listed developer and manufacturer of innovative fuel cell
    products for mobile and stationary applications.
  • From 2001 to 2014, Randy was the CEO and held senior executive
    positions at various sustainable energy companies, including Solar
    Integrated Technologies and Stuart Energy Systems Corporation.
  • Randy began his career at Torys, a leading Canadian business law firm
    and today represents Ballard as a supporting member Hydrogen Council
    and is a Vice Chairman of the International Hydrogen and Fuel Cell
    Association, both of which Hyundai is a member.
  • Randy has a Bachelor of Law degree from the University of Western
    Ontario and Bachelor of Arts degree from York University.

Elliott Proposed Independent Nominee:

Margaret (“Peg”) Billson

Peg Billson is an engineer and business leader with more than three
decades of experience at large, complex industrial and transportation

  • From 2009 to 2016, Peg was a senior executive and divisional CEO at
    BBA Aviation, an aftermarket parts and services business supplying the
    global aviation industry, where she led 2000 employees across four
  • She served as President and COO of a start-up light jet manufacturer
    from 2005 to 2008 where she oversaw the engineering and design,
    production, supply chain and flight operations teams.
  • From 1993 to 2005, Peg was a leading executive at Honeywell
    International Inc. and Douglas Aircraft Company.
  • Peg previously served as an Independent Director at Skywest Inc., a
    US-listed aviation company, and currently serves as a member of the
    Human Resources and Nomination & Governance Committees at CAE Inc., a
    Canadian-listed aviation training and simulation company serving the
    civil and defense sectors.
  • Peg has a Bachelor’s Degree from Embry Riddle Aeronautical University
    and a Master’s Degree in Engineering – Aerospace from California State
    University Long Beach.

* * * *

About Elliott

Elliott Management Corporation manages two multi-strategy funds which
combined have more than $34 billion of assets under management. Its
flagship fund, Elliott Associates, L.P., was founded in 1977, making it
one of the oldest funds of its kind under continuous management. The
Elliott funds’ investors include pension plans, sovereign wealth funds,
endowments, foundations, funds-of-funds, and employees of the firm.
Elliott Advisors (HK) Limited is an affiliate of Elliott Management
Corporation. With a strong understanding of the Korean market and
corporate structures, Elliott has a history of successfully enhancing
shareholder value in Korea.

1 Elliott’s letter to Mobis shareholders can be read in its
entirety at http://www.acceleratehyundai.com[3]

2 Hyundai Motor Company CEO Investor Day presentation, Slide
26: Required Liquidity, February 27, 2019


  1. ^ (www.businesswire.com)
  2. ^ http://www.acceleratehyundai.com (cts.businesswire.com)
  3. ^ http://www.acceleratehyundai.com (cts.businesswire.com)
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