Flashlight Capital Partners (FCP) wants to purchase KT&G Corp.’s Ginseng business. The activist investor, which is also a shareholder in KT&G, has submitted a letter of intent to acquire all shares of KT&G subsidiary Korea Ginseng Corp. (KGC).
FCP is offering KRW1.9 trillion ($1.4 billion), which is 50 percent higher than the enterprise value analyst estimates mentioned at KT&G’s 2023 investor day.
FCP believes that figure significantly undervalues the business. “It’s like watching parents who downplay their own child,” said FCP Managing Partner Sanghyun Lee in a statement. “We see immense potential in the poor kid. We aim to develop Korea ginseng into a global brand, comparable to Manuka honey or Maotai.”
Despite the growing demand for health food, KGC’s operating profit halved from KRW202.1 billion in 2019 to KRW103.1 billion in 2023, and KT&G’s guidance indicates further decline in 2024.
FCP has argued that the tobacco-ginseng pairing was a “wrong marriage,” and that KGC’s value is not reflected in KT&G’s stock price at all. Since 2022, FCP has advocated for a horizontal spinoff of KGC, but KT&G’s board rejected the proposal in 2023.
Lee compared KT&G’s stance on KGC as “Not good enough for me, but too good for others.” He emphasized the need for either a spinoff or sale of KGC and warned that “If KT&G’s board opposes our proposal without a proper rationale, it will only prove that they are serving the interests of management rather than those of the shareholders.”
Headquartered in Singapore, FCP has repeatedly pushed for changes at KT&G. In recent years, it has pushed for a greater emphasis on smoking alternatives, more transparent procedures in filling the company’s leadership, and a new CEO pay structure.