An investor calls for splitting KT&G's ginseng and tobacco businesses as well as pushing for increased revenue from HNB products. Photo credit: Kwangmo, Creative Commons
An investment firm which acquired a minority stake in KT&G calls for the tobacco conglomerate to separate its ginseng business from its tobacco business, according to The Wall Street Journal.
The firm is Singapore-based activist-investment firm Flashlight Capital Partners Pte Ltd., which was set up by Sanghyun Lee, former head of Korea for Carlyle Group Inc. during 2011-2019. Flashlight Capital now has around 1% stake in KT&G and is reported to have held private discussions with KT&G leadership over the past six months.
According to FactSet data, KT&G has a market capitalization of around US$8.5 billion. In the recent financial year, KT&G sales reached US$3.6 billion.
Flashlight is pushing for heat-not-burn products to represent at least 50% of KT&G's total tobacco revenue by 2027, noting the growth of alternative tobacco products. It also wants KT&G to separate its ginseng business from its core tobacco business to maximize the ginseng business’ value and expand it internationally, saying, “From our perspective, it defies logic that a ginseng business is owned by a tobacco company.”
Flashlight also wants KT&G to sell non-core businesses including its real estate development division, as well as triple the size of its share buy-back program and improve its environmental, social, and corporate governance issues. In addition to that, the firm also requests KT&G appoint shareholders who have experience in the capital markets, operational knowledge, and public company board experience as directors.
In 2006, multibillionaire investor and activist Carl Icahn and another investor called on KT&G to expand its ginseng business, increase dividend, buyback shares, and sell real estate. After the company implemented some of his recommendations, Icahn eventually profited from his stake in the company.