LG Chem shares soar after Palliser urges new board directors, stock buybacks

By Svea Herbst-Bayliss and Heejin Kim

NEW YORK/SEOUL (Reuters) -Palliser Capital believes LG Chem is severely undervalued and could double its stock price by refreshing its board and buying back shares - an opinion that sent the company's shares surging 12%.

The South Korean company trades at a 74% discount to its net asset value as investors see it more as a struggling petrochemicals company, while dismissing its strong battery business, according to Palliser's founder and Chief Investment Officer James Smith.

LG Chem shares have lost 20% in the last 12 months and have lagged their peers. "This thing is crazy, crazy, crazy cheap," he said at the 13D Monitor Active Passive Investment Summit in New York.

Palliser did not disclose the size of its holding in LG Chem. LG Chem owns 82% of LG Energy Solution, a major supplier of batteries for automakers including Toyota and Tesla.

Smith blamed a lack of trust in LG Chem's corporate governance, a lack of alignment with shareholders as well as poor capital allocation for a steep gap in valuation that Palliser believes should be at $65 billion.

"LG Chem has a tremendous opportunity to unlock value by closing its deep valuation discount," Smith said. "We ask the board to formally evaluate the LG Chem Value Enhancement Plan and lead by example in advancing President Lee's KOSPI 5,000 vision."

LG Chem declined to comment on Palliser's remarks.

Under its November 2024 plan to enhance corporate value, the company said it would consider raising its payout ratio once returns from new investments in batteries and other new businesses generate profits.

President Lee Jae Myung, who took office in June, has stepped up pressure on listed companies to reform, saying the KOSPI could hit 5,000 within five years. The benchmark has risen 42% since he came to power, currently trading at around 3,800.

This is not the first time Palliser targeted a South Korean family-owned conglomerate. Last year, it proposed and gained changes from chipmaker SK Hynix's holding company, and Smith's former company Elliott, has also previously targeted Samsung Electronics and Hyundai Motor in high-profile battles.

While Smith praised recent steps by LG Chem, including the sale of its polarizer business two years ago and the sale of a non-core water filter business this year, he said they are not enough.

The board needs to be refreshed with experts in advanced materials, electric vehicles and life sciences as its directors are academics who lack business management expertise and capital allocation experience, he said.

Smith also urged the company to buy back shares and maintain appropriate levels of net debt.

(Reporting by Svea Herbst-Bayliss; Additional reporting by Heejin Kim and Hyunjoo Jin in Seoul; Editing by Marguerita Choy and Edwina Gibbs)