Seoul tobacco giant considers investor demands

By William Sim Bloomberg News
FRIDAY, APRIL 21, 2006

SEOUL KT&G, the biggest South Korean tobacco company, said Thursday that it might raise dividends and buy back more shares - two of the demands of the activist investors Carl Icahn and Warren Lichtenstein.

"If we make more cash, we can spend it for shareholders by increasing dividends and stock buybacks," the chief executive, Kwak Young Kyoon, said during an interview. "We are considering these two options for our mid- and long-term business plan to be announced around late June."

The moves would mean three of the U.S. investors' demands had been met after their unsolicited $10 billion bid for the former state-run tobacco monopoly: KT&G on Wednesday said it would sell its stake in the retail chain Buy The Way, another decision sought by the pair.

Funds available for KT&G to return to shareholders increased in the first quarter, with the company on Thursday reporting that profit rose by a third from a year earlier, to 96.5 billion won, or $101.7 million.

The U.S. investors have been using their combined 7.34 percent stake to push KT&G, which is based in Daejeon, South Korea, to sell assets and improve returns to shareholders. Their demands include spinning off the company's ginseng and real estate assets, increasing dividends and stock buybacks, and selling shares in nontobacco companies.

"KT&G will eventually have to meet most of the demands by the U.S. investors, who have strong support from overseas shareholders," said Yoo Jung Sang, a fund manager at PCA Investment Trust Management in Seoul. "The question is how fast the company is willing to carry out these demands."

The tobacco company on Thursday hired Booz Allen Hamilton, a New York-based business and technology consulting company, to advise on its future business strategy, a KT&G spokesman, Won Sung Hee, said.

KT&G said in a regulatory filing that it planned to sell its 43.7 percent stake in Buy The Way for 10,000 won a share, or 40.3 billion won, to Orion.

The disclosure of the planned sale came as Lichtenstein attended his first meeting in Seoul as a KT&G director after overcoming management opposition to win one of 12 seats.

Kwak in February rejected an unsolicited bid from Icahn and Lichtenstein to acquire KT&G at 60,000 won a share. The company would be worth 10.6 trillion won, or 67,765 won a share, if broken up, Credit Suisse Group has estimated.

The U.S. investors said in February that they might bring their takeover bid directly to shareholders after KT&G refused to discuss their offer. Icahn in February succeeded in pressuring Time Warner to buy back stock, and Lichtenstein pioneered hostile takeover bids by overseas investors in Japan.

If carried out, it would be the first time an overseas investor involved in a hostile bid would make a direct offer to shareholders of a South Korean company since at least 2000. KT&G hired Goldman Sachs Group, Lehman Brothers Holdings and Woori Investment & Securities to help prepare its defense.

KT&G was established inside the royal palace in 1899 as the Imperial Household's exclusive agent for tobacco and ginseng. Known as Korea Tobacco & Ginseng Corp. until 2003, the company had sole manufacturing rights for red ginseng until 1997.

SEOUL KT&G, the biggest South Korean tobacco company, said Thursday that it might raise dividends and buy back more shares - two of the demands of the activist investors Carl Icahn and Warren Lichtenstein.

"If we make more cash, we can spend it for shareholders by increasing dividends and stock buybacks," the chief executive, Kwak Young Kyoon, said during an interview. "We are considering these two options for our mid- and long-term business plan to be announced around late June."

The moves would mean three of the U.S. investors' demands had been met after their unsolicited $10 billion bid for the former state-run tobacco monopoly: KT&G on Wednesday said it would sell its stake in the retail chain Buy The Way, another decision sought by the pair.

Funds available for KT&G to return to shareholders increased in the first quarter, with the company on Thursday reporting that profit rose by a third from a year earlier, to 96.5 billion won, or $101.7 million.

The U.S. investors have been using their combined 7.34 percent stake to push KT&G, which is based in Daejeon, South Korea, to sell assets and improve returns to shareholders. Their demands include spinning off the company's ginseng and real estate assets, increasing dividends and stock buybacks, and selling shares in nontobacco companies.

"KT&G will eventually have to meet most of the demands by the U.S. investors, who have strong support from overseas shareholders," said Yoo Jung Sang, a fund manager at PCA Investment Trust Management in Seoul. "The question is how fast the company is willing to carry out these demands."

The tobacco company on Thursday hired Booz Allen Hamilton, a New York-based business and technology consulting company, to advise on its future business strategy, a KT&G spokesman, Won Sung Hee, said.

KT&G said in a regulatory filing that it planned to sell its 43.7 percent stake in Buy The Way for 10,000 won a share, or 40.3 billion won, to Orion.

The disclosure of the planned sale came as Lichtenstein attended his first meeting in Seoul as a KT&G director after overcoming management opposition to win one of 12 seats.

Kwak in February rejected an unsolicited bid from Icahn and Lichtenstein to acquire KT&G at 60,000 won a share. The company would be worth 10.6 trillion won, or 67,765 won a share, if broken up, Credit Suisse Group has estimated.

The U.S. investors said in February that they might bring their takeover bid directly to shareholders after KT&G refused to discuss their offer. Icahn in February succeeded in pressuring Time Warner to buy back stock, and Lichtenstein pioneered hostile takeover bids by overseas investors in Japan.

If carried out, it would be the first time an overseas investor involved in a hostile bid would make a direct offer to shareholders of a South Korean company since at least 2000. KT&G hired Goldman Sachs Group, Lehman Brothers Holdings and Woori Investment & Securities to help prepare its defense.

KT&G was established inside the royal palace in 1899 as the Imperial Household's exclusive agent for tobacco and ginseng. Known as Korea Tobacco & Ginseng Corp. until 2003, the company had sole manufacturing rights for red ginseng until 1997.

SEOUL KT&G, the biggest South Korean tobacco company, said Thursday that it might raise dividends and buy back more shares - two of the demands of the activist investors Carl Icahn and Warren Lichtenstein.

"If we make more cash, we can spend it for shareholders by increasing dividends and stock buybacks," the chief executive, Kwak Young Kyoon, said during an interview. "We are considering these two options for our mid- and long-term business plan to be announced around late June."

The moves would mean three of the U.S. investors' demands had been met after their unsolicited $10 billion bid for the former state-run tobacco monopoly: KT&G on Wednesday said it would sell its stake in the retail chain Buy The Way, another decision sought by the pair.

Funds available for KT&G to return to shareholders increased in the first quarter, with the company on Thursday reporting that profit rose by a third from a year earlier, to 96.5 billion won, or $101.7 million.

The U.S. investors have been using their combined 7.34 percent stake to push KT&G, which is based in Daejeon, South Korea, to sell assets and improve returns to shareholders. Their demands include spinning off the company's ginseng and real estate assets, increasing dividends and stock buybacks, and selling shares in nontobacco companies.

"KT&G will eventually have to meet most of the demands by the U.S. investors, who have strong support from overseas shareholders," said Yoo Jung Sang, a fund manager at PCA Investment Trust Management in Seoul. "The question is how fast the company is willing to carry out these demands."

The tobacco company on Thursday hired Booz Allen Hamilton, a New York-based business and technology consulting company, to advise on its future business strategy, a KT&G spokesman, Won Sung Hee, said.

KT&G said in a regulatory filing that it planned to sell its 43.7 percent stake in Buy The Way for 10,000 won a share, or 40.3 billion won, to Orion.

The disclosure of the planned sale came as Lichtenstein attended his first meeting in Seoul as a KT&G director after overcoming management opposition to win one of 12 seats.

Kwak in February rejected an unsolicited bid from Icahn and Lichtenstein to acquire KT&G at 60,000 won a share. The company would be worth 10.6 trillion won, or 67,765 won a share, if broken up, Credit Suisse Group has estimated.

The U.S. investors said in February that they might bring their takeover bid directly to shareholders after KT&G refused to discuss their offer. Icahn in February succeeded in pressuring Time Warner to buy back stock, and Lichtenstein pioneered hostile takeover bids by overseas investors in Japan.

If carried out, it would be the first time an overseas investor involved in a hostile bid would make a direct offer to shareholders of a South Korean company since at least 2000. KT&G hired Goldman Sachs Group, Lehman Brothers Holdings and Woori Investment & Securities to help prepare its defense.

KT&G was established inside the royal palace in 1899 as the Imperial Household's exclusive agent for tobacco and ginseng. Known as Korea Tobacco & Ginseng Corp. until 2003, the company had sole manufacturing rights for red ginseng until 1997.