Flashlight Capital Partners Takes Legal Action Against KT&G Directors

Flashlight Capital Partners Files Lawsuit Against KT&G Directors

Flashlight Capital Partners Pte. Ltd. (“Flashlight Capital”), a notable shareholder in KT&G Corporation (KRX: 033780), has initiated a significant legal action against the board members of KT&G. This derivative lawsuit comes in response to the alleged misappropriation of treasury shares valued at approximately 1 trillion won. Flashlight Capital aims to recover damages and emphasizes that any funds recovered will directly benefit KT&G itself.

Background of the Lawsuit

The core issue surrounding the lawsuit pertains to KT&G's decision to donate substantial amounts of treasury shares to multiple organizations. These include foundations associated with former CEOs and internal welfare funds, raising serious governance concerns. In January 2024, Flashlight Capital made a formal request to KT&G’s board, urging them to pursue legal actions against 21 directors believed to be involved in these wrongful activities.

The Impact of the Allegations

Flashlight Capital's lawsuit suggests that these donations were not merely random acts, but rather part of a structured plan orchestrated by former CEO Min. This individual had previously faced imprisonment on bribery charges, adding further allegations of misconduct. Following these actions, the recipient entities have managed to amass voting rights surpassing 12%, effectively positioning them as the primary shareholder. This accumulation of power raises critical questions about the influence of these foundations over KT&G's decision-making processes.

Current Situation with Treasury Shares

As part of its strategic maneuvers, KT&G still retains around 13% of its treasury stock. This situation has led to uncertainty regarding the company's next steps in relation to this sizable stake. In late 2023, KT&G communicated its intentions to gradually cancel a portion of its treasury shares over the next three years. Nevertheless, outside of an initial cancellation of 2.5% in early 2024, there has been a notable lack of subsequent action.

Management's Stance

The current management, represented by CEO Bang Kyung Man, has expressed skepticism regarding the potential impact of treasury share cancellations on the company's stock prices. In a recent statement, he acknowledged that these cancellations would likely have limited effects. This remark has heightened concerns from Flashlight Capital, particularly regarding the possibility that KT&G may attempt to funnel treasury shares to shadowy foundations once more.

Plans for Shareholder Engagement

In an effort to enhance corporate accountability, Sanghyun Lee, Managing Partner of Flashlight Capital, announced plans to present a comprehensive performance assessment of CEO Bang to the shareholders in February. This initiative aims to foster transparency in leadership and promote a more accountable governance structure at KT&G.

About Flashlight Capital

Flashlight Capital Partners Pte. Ltd. is an investment management entity led by Sanghyun Lee, formerly of the Carlyle Group. The firm is committed to elevating corporate governance standards and instigating meaningful changes within its investment portfolio. Through their activities, they aim to ensure that companies like KT&G operate with integrity and transparency. For additional information about their initiatives, please visit their official website and YouTube channel.

Frequently Asked Questions

What is the main reason for Flashlight Capital's lawsuit?

The lawsuit is aimed at recovering damages due to KT&G's alleged illegal donation of treasury shares valued at 1 trillion won.

How has KT&G responded to the allegations?

As of now, KT&G has not taken any legal action against the board members involved in the alleged misconduct.

What percentage of voting rights do the recipient entities hold?

The entities that received the treasury shares hold over 12% of the voting rights in KT&G, making them significant stakeholders.

What has been the stance of the current CEO regarding treasury shares?

CEO Bang Kyung Man has indicated that cancelling treasury shares will have a limited impact on the company's stock prices.

What are Flashlight Capital's plans moving forward?

Flashlight Capital plans to present an assessment of CEO Bang’s performance to shareholders, emphasizing accountability and governance improvements.

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