Controversy mounted over a rare demand for dividends by a U.S. hedge fund to GS Home Shopping on Tuesday as the Korean multimedia retailer vowed to defend such moves legally.
An official at GS Home Shopping told local media that SC Fundamental’s request to increase cash dividends for shareholders was “excessive” and it would undermine the company’s efforts to survive deteriorating market conditions.
“To meet SC Fundamental’s demand, we have to spend 80 percent of net profit for dividends which is excessive,” the official was quoted as saying by local media Asia Today. “With the entire market facing a slowdown, we need cash reserves to make investments for establishing online sales networks.”
Head office of GS Home Shopping
GS Home Shopping, one of major TV homeshopping channels here, was responding to the New York-based hedge fund for first time after it received a letter on Thursday asking the firm to double the cash dividend it pledged last month -- of 5,200 won ($4.27) per share.
The investor also requested a 10 percent share buyback and cancellation -- equivalent to 623,951 shares -- to raise the stock price, in addition to its demand that GS hires outside directors.
SC Fundamental took the unexpected action after GS Home Shopping cut dividend payouts by 32 percent from last year’s 7,700 won per share. It also said that the retailer held enough cash reserves -- over 800 billion won -- to compensate shareholders.
If the firm has no investment plans, the cash should be returned to shareholders, it added. SC Fundamental holds a 1.4 percent stake in GS Home Shopping and more than 3 percent in proxy votes, according to reports.
But the U.S. hedge fund has reportedly sought support from other foreign and local institutional investors. As of late last year, foreign investors owned more than 35 percent stake in GS Home Shopping.
The multimedia retail arm of GS Group, the nation’s eighth-largest conglomerate, hit back, claiming that the dividend payout was about 41 percent of its net profit and offered better returns than any others in the business. The company has appointed local law firm Lee & Ko as its legal counsel to counteract SC Fundamental’s request, it said.
But GS Home Shopping is unlikely to accede the hedge fund’s demand, said an analyst at Samsung Securities, noting that votes backing the retailer outnumber those of foreign investors.
Industry watchers said such moves by foreign investors naturally represent shareholders’ right. But they raised concerns that aggressive actions by activist investors could undermine Korean companies’ corporate value and have a negative impact on their stock values.
Foreign experts, however, said activist investors like SC Fundamental would continue to interfere and make headlines across Asia.
“It has been difficult for foreign investors, even activist investors, to push their ideas to companies in Korea and Japan, because they are still heavily owned by families,” a senior hedge fund manager in Hong Kong told The Korea Herald.
“But I think as long as the market opens up, and more value is seen in companies in Japan and Korea, this trend will continue.”
By Cho Chung-un (firstname.lastname@example.org)