Hyundai to cancel $890 mn in shares under pressure from hedge fund Elliott

Hyundai Motor said it will cancel $890 million worth of treasury shares, its first stock cancellation in 14 years - a plan that comes amid heavy shareholder pressure to improve returns, restructure and bounce back from dismal earnings.

US activist hedge fund Elliott Management ramped up pressure on the South Korean automaker this week, calling for a holding company structure, a share cancellation as well as the addition of three independent board members.

"Hyundai Motor seems to be trying to reach a compromise with Elliott by accepting part of its demands," said Kim Jin-woo, an analyst at Korea Investment & Securities.

Hyundai said in a statement it plans to cancel 560 billion won of existing treasury shares by July 27 and will buy back and cancel another 400 billion won worth of stock.

"Hyundai Motor has and will continue to focus on improving shareholder value. Today's announcement is part of a long consideration process and displays our efforts to honour this commitment," it said in a statement.

The announcement came on the heels of quarterly profit halving to its lowest level in nearly six years, with the automaker battered by bleak US and China sales.

The wider Hyundai group has taken some steps to improve corporate governance and streamline its complex ownership structure.

Hyundai Mobis Co Ltd, which will become the group's de facto holding firm, plans to spin off its module and after-service parts businesses and merge them with logistics affiliate Hyundai Glovis.

"The share cancellation plan will help placate Elliott and other investors, and raise the chance of the plan getting shareholder approval," said Ko Tae-bong, an analyst at Hi Investment & Securities.

Hyundai's shares were flat in morning trade. Although they slumped nearly 5 percent on earnings on Thursday, the stock has gained 9 percent so far this month on hopes of more corporate governance reform.

While welcomed by other investors, pressure from Elliott has drawn criticism from South Korea's anti-trust watchdog which said this week its proposal for the group to adopt a holding company structure was "inappropriate" and, if implemented, would be in violation of antitrust law.

Elliott said in a statement on Friday it expected to have dialogue with the antitrust watchdog over Hyundai Motor Group's restructuring plan. It did not comment on the share cancellation plan.