Align Partners Advocates for Governance Overhaul at Coway Co.

Align Partners Advocates for Governance Overhaul at Coway Co.

Align Partners Capital Management Inc. has made a significant appeal regarding Coway Co., Ltd., a company where they hold a notable 2.8% stake. Their presentation emphasizes the urgent need for improvements in governance and capital allocation within Coway, primarily due to the disproportionate control held by Netmarble Corporation.

The Control of Netmarble and Its Implications

Netmarble, with a substantial 25.1% stake in Coway, exerts considerable influence over the company’s operations. This dominance is reinforced by key positions held by Netmarble's founder and a former executive, who currently serves as Coway's CEO. Such a governance structure raises substantial concerns, particularly regarding its impact on minority shareholders.

Conflict of Interest in Governance

Coway’s governance framework has been criticized for featuring clear conflicts of interest, which have significantly undermined shareholder confidence. This issue became particularly evident when the shareholder return policy was drastically cut from 90% to 20%, which raised alarms among investors. They have since witnessed stagnation in earnings utilization, adversely affecting the return on equity (ROE) and overall market valuations.

Recent Attempts to Reverse the Trend

Recently, Coway announced a revised commitment to increase the shareholder return ratio back to 40%. However, analysts warn that this move could weaken its leverage multiple, which currently stands at 1.0x compared to the industry average of 2.2x. This adjustment might further depress Coway’s ROE and valuation metrics.

Declining Valuation Signals a Need for Action

The market's apprehension regarding Coway’s governance is reflected in its declining valuation metrics. The company's price-to-book ratio plummeted from 6.0x in late 2019, when Netmarble ascended to its largest shareholder status, to a concerning 1.5x today. This dramatic decline underscores a loss of investor confidence and highlights the imperative for Coway to rectify governance issues while optimizing its capital structure.

Calls to Action by Align Partners

Align Partners is advocating for multiple pivotal changes at Coway. One major recommendation is the enhancement of governance through a more autonomous Board, ensuring that minority shareholders’ interests are not overshadowed by Netmarble's influence. Another recommendation is the establishment of a clear capital structure policy that focuses on maintaining a suitable Net Debt to EBITDA ratio, paving the way for improved returns for shareholders.

Looking Ahead: Urgency in Change

Align Partners has issued a request for Coway to respond to these propositions and address key questions by a specified deadline. The proactive approach taken by Align Partners emphasizes the necessity for immediate action in enhancing corporate governance and capital management practices at Coway.

About Align Partners

Align Partners, led by CEO Changhwan Lee, is dedicated to investment management with a strategic focus on South Korea. The firm brings substantial expertise in private equity and investment banking, aiming to stimulate sustainable growth while tackling the prevalent 'Korea discount' in valuation.

Frequently Asked Questions

What is the main concern raised by Align Partners regarding Coway?

Align Partners is primarily concerned about the governance framework at Coway, especially the disproportionate influence exerted by Netmarble Corporation.

How does Netmarble's stake affect Coway's governance?

Netmarble's significant stake allows it to have substantial control over Coway’s operations, which raises conflicts of interest and undermines minority shareholders' protections.

What changes does Align Partners propose for Coway?

Align Partners advocates for a more independent Board and the establishment of a clear capital structure policy to enhance shareholder returns.

What recent actions have been taken by Coway regarding shareholder returns?

Coway announced a rise in the shareholder return ratio to 40%, but concerns remain about its implications for leverage and valuation.

Who leads Align Partners?

Align Partners is led by CEO Changhwan Lee, who emphasizes the firm's focus on driving growth in South Korea.

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