US financier Carl Icahn’s audacious move on Korean tobacco and ginseng company KT&G has made great headlines and triggered apoplexy among Korea’s more xenophobic elements. Having amassed a combined stake of 6.72% with fellow investor Steel Partners, and pressed for a spin-off of KT&G’s ginseng division to return more capital to shareholders, Icahn has even mooted a takeover of the company. In March the Icahn camp finally won a board seat in a shareholder vote, the first time a foreign investor has been voted onto a Korean board against management wishes.
It might seem that Icahn has a clear case to make and is successfully prosecuting it. Korea is well known for its market “discount” – an ill-defined concept that penalizes local valuations when set against international comparables as a result of a vague list of issues that include weak corporate governance, government protectionist policies and even perceived North Korean risk.
But Icahn might have chosen the wrong target. A company that is widely respected in Korea and internationally for sound corporate governance is not the obvious target for an overhaul. And KT&G has already returned large sums to shareholders via increased dividends and buy-back programmes.