Palliser Capital Calls for Board Refresh at LG Chem to Boost Shares

Palliser Capital is urging LG Chem, a prominent supplier of electric vehicle batteries, to refresh its board and initiate a share buyback. The firm believes that implementing these changes could potentially more than double the company’s share price. Currently, the South Korean chemical giant trades at a staggering 73 percent discount to its net asset value, as investors prioritize its struggling petrochemicals division while underestimating its strong battery business.

At the 13D Monitor Active Passive Investment Summit in New York, Palliser’s founder and Chief Investment Officer, James Smith, highlighted the disconnect between LG Chem’s current valuation and its potential worth. He pointed out that despite the company’s strengths, its shares have plummeted by 20 percent over the past year, significantly underperforming against its peers.

Smith emphasized the dire situation, stating, “This thing is crazy, crazy, crazy cheap.” He attributes the disparity in valuation to a lack of trust in LG Chem’s corporate governance and poor alignment with shareholders. Additionally, he criticized the company’s capital allocation strategies, suggesting they contribute to the current valuation of $14 billion, which he believes should be closer to $53 billion.

Investors have also expressed discontent with LG Chem’s decision to spin off its battery business into a separate entity, LG Energy Solutions, in 2020. Analysts have suggested that this move negatively impacted the overall Korean capital markets. While Smith acknowledged LG Chem’s recent efforts, such as the sale of its polarizer business two years ago and a non-core water filter business this year, he argues that these actions are insufficient.

To enhance the company’s performance, Smith advocates for a revitalization of the board. He believes it should comprise experts with relevant skills in advanced materials, electric vehicles, and life sciences. Currently, he noted, the board consists predominantly of academics who may lack the necessary business management and capital allocation expertise.

In addition to board reforms, Smith is calling for LG Chem to initiate a share buyback program and to maintain suitable levels of net debt. His background includes experience with Elliott Investment Management and investments in Japanese companies such as Tokyo Tatemono and Keisei Electric Railway.

In summary, Palliser Capital’s push for strategic changes at LG Chem reflects broader investor concerns about governance and performance. The proposed reforms aim to align the company more closely with shareholder interests and unlock its true value in the competitive battery market.