Activist investor Palliser Capital, based in London, is urging LG Chem, a crucial chemicals division of South Korea’s LG Group, to implement strategic changes aimed at enhancing the company’s market valuation.
Palliser announced on Monday that they have submitted a proposal for discussion at LG Chem’s upcoming annual general shareholders’ meeting in March. This follows their prior announcement in October regarding the acquisition of a stake exceeding 1 percent in the chemical materials manufacturer.
While LG Chem recently outlined plans to reduce its ownership stake in LG Energy Solution, a leading battery manufacturer within the LG Group, by approximately 10 percentage points to 70 percent over the next five years, Palliser is advocating for an updated capital allocation plan that would facilitate a more significant reduction.
LG Chem currently holds a 79.4 percent stake in LG Energy Solution, a fact the hedge fund emphasizes is not adequately reflected in LG Chem’s overall market capitalization.
Since October, Palliser has been publicly advocating for LG Chem to decrease its ownership stake in LG Energy Solution and utilize the resulting proceeds to increase shareholder returns.
The fund is also calling for LG Chem to revise its articles of incorporation, allowing shareholders with a 0.5 percent stake in the company to submit advisory resolutions.
Despite Palliser’s earlier disclosure of holding a stake of over 1 percent in LG Chem, recent media reports indicate that the fund’s ownership has decreased to 0.67 percent as of the end of the previous year.
Furthermore, the fund is urging LG Chem to routinely disclose the company’s net asset value discount, conduct a thorough review of executive compensation practices, and appoint a lead independent director to better represent the interests of outside directors and strengthen engagement with shareholders.
In its proposal, Palliser characterizes the undervaluation as “both illogical and unsustainable,” emphasizing the difficulty shareholders face in understanding why LG Chem has not proactively addressed the underperformance of its shares.
“The universally recognized reality is that the market does not properly or accurately credit LG Chem’s very significant stake in LGES, the market value of which is more than 3.3 times the entire market value of the company,” the proposal states.
The proposal further stresses that LG Chem has a “clear opportunity” to be a “national champion” in eliminating the perceived “Korea discount” affecting the valuation of Korean companies.
Palliser has a track record in Korea for challenging local conglomerate affiliates, including SK Square and Samsung C&T, to implement measures aimed at boosting corporate value and returning profits to shareholders.
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