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Spin-Off : Why Necessary and Appropriate LG Corp

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Spin-Off : Why Necessary and Appropriate LG Corp Spin-off : Why Necessary and Appropriate LG Corp. March 2021 Summary 165 LG Corp.(the “Company”) is pursuing a spin-off of five subsidiaries, including LG International, etc. and the shareholders will 0 get to vote on the Spin-off plan through AGM on 26 March 2021. The Spin-off is strategically essential for the advancement of 52 current business portfolio and the efficiency of resource management. After considering various transaction options, we have concluded that a horizontal spin-off is the most efficient transaction structure to accomplish such goals. Through this Spin-off, the Company will be able to increase corporate value and shareholder profits, which will enable efficient allocation of the Company’s capital and allow for active return of the profits to the shareholders. Furthermore, we would like to explain certain 119 issues that a minority shareholder have raised with respect to the Spin-off and the Company’s governance structure through 119 a separate set of Q&As. 119 141 Table of Contents 116 75 1. Restructuring LG’s Portfolio based on Business Characteristics 1 238 238 238 2. Expected Impacts of the Spin-off 3 3. LG Corp.’s Capital Allocation Plan following the Spin-off 10 0 0 0 Appendix 12 84 93 100 1. Restructuring LG’s Portfolio Based on Business Characteristics (Cont’d) 165 Since the managerial change in 2018, LG Corp. has continued to execute the long-term strategy to increase the 0 competitiveness of its flagship businesses and find new growth engines. The criteria used for classifying and restructuring 52 LG’s business portfolio are as follows. High Strategic Priority Low 119 119 119 Low Business Value Disposal and Withdrawal Enhancement LG Electronics’ disposal of its water 141 116 CNS’s business cooperation with a treatment business 75 financial investor LG Chem’s disposal of its LCD LG Electronics’ announcement of polarizer business establishing a JV with Magna LG Uplus’ disposal of its PG business International for e-Powertrain S&I’s disposal of its MRO business Growth 238 Low Strategic Priority 238 Potential & High Growth Potential 238 Intensive Management (1) International Pantos Independent & (24.7%) (51.0%) Chem’s battery business split-off Responsible Management Hausys 0 (33.5%) 0 0 NewCo Spin-off Silicon Works (33.1%) High MMA (50.0%) 84 93 100 Notes 1. Independent from LG Corp 1 1. Restructuring LG’s Portfolio Based on Business Characteristics As a result of the Spin-off, the new holding company will be able to implement an independent management and 165 decision-making structure tailored to the characteristics and needs of each spun-off subsidiary. Each spun-off subsidiary 0 52 will be able to deepen their business expertise to expand beyond the captive market, which will enhance the overall corporate and shareholder value. Before Spin-off After Spin-off Shareholdings based on common stocks 119 119 119 Shareholders 141 116 75 LG Corp. SurvivingCo NewCo(2) 238 Telecom & Telecom & International Silicon Works Hausys MMA 238 Electronics Chemicals Electronics Chemicals 238 Services Services (24.7%) (33.1%) (33.5%) (50.0%) Silicon Works Hausys International LG Pantos LG Chem LG Uplus (33.1%) (33.5%) (24.7%) Electronics (51.0%)(1) 0 LG Pantos MMA (50.0%) LG Display LG H&H LG CNS 0 Electronics (51.0%)(1) 0 LG Display LG Chem LG Uplus LG Innotek 84 LG Innotek LG H&H LG CNS 93 100 Notes: Shareholding illustration of key subsidiaries and affiliates 1. Shares owned by International 2. Tentative 2 3 2. Expected Impacts of the Spin-off (Cont’d) 165 0 52 119 119 119 141 2 3 4 116 1 75 Portfolio Optimization Based on Opportunity to Unlock the Maintenance of Partnership NAV Discount Alleviation Business Characteristics Hidden Value 238 238 238 • Independent management • By having the Newco to focus and • Spun-off entities can unlock new • We expect to alleviate the NAV overseeing the spun-off subsidiaries specialize in their flagship businesses, business initiatives under discount issue as strategic and segregation of businesses will we expect to obtain unattained independent management(1), while initiatives continue and the spin- enhance management efficiency value and reach full growth potential NewCo is continuing its partnership off aims to diversify investment and lead to tailored strategies to with LG risks and promote business- 0 0 maximize value potential specific expertise. 0 84 93 100 Notes: 1. Independent from LG Corp 3 1 Portfolio Optimization Based on Business Characteristics (Details) Businesses with similar characteristics will be managed independently to enhance management efficiency and 165 0 implement tailored strategies to maximize the potential value. 52 LG Corp. NewCo 119 119 Hausys 119 No. 1 construction materials in Korea International Silicon Works 141 47 global networks Global top 3 display 116 in 21 countries driver IC supplier 75 Electronics Chemicals Telecom & Services Pantos MMA Largest Freight Forwarder in Addresses 95% of 238 Korea, Global Top 6 in PMMA demand for 238 International Ocean Freight domestic car taillight 238 • Capital intensive businesses requiring stable long-term • Relatively smaller scale businesses with ample growth investments and resource allocation potential to be unlocked 0 • Global top-tier businesses with proven • Large room for business diversification and global 0 competitiveness and brand awareness expansion 0 • Stable cash flow generation and huge upside • Feasible to adapt to change of market by potential from new technology development implementation of streamlined decision making (AI, Big Data, 5G, Electric Vehicle) process under independent management(1) 84 93 100 Notes: 1. Independent from LG Corp 4 2 Opportunity to Unlock the Hidden Value (Details) With Newco’s board of directors specialized in their flagship businesses, we expect to attain inherent value and reach full 165 0 growth potential going forward. 52 Huge Potential Market(1) for NewCo NewCo Holding Structure to Expand its Businesses 119 119 119 [ Board of Directors ] Former CEO, LG Semiconductor Domestic Koo, Former CEO, LG-Philips LCD CEO MMA Market Bon Joon Former CEO, LG Electronics KRW 1Tn 141 Former Vice Chairman, LG Corp. 116 Song, 75 COO Former CEO, LG International Chi Ho Domestic Global Palm Oil Market Park, Former Finance Manager, LG Chem Construction CFO Jang Soo Former Finance VP, LG Corp. Materials Market KRW 58Tn KRW 19Tn Unlocking the 238 * The BOD consists of total 7 directors(3 inside and 4 outside). 238 238 Hidden Value NewCo Global Global 3PL Market 0 Display-IC Market 0 KRW 1,265Tn 0 KRW 9Tn International Silicon Works Hausys MMA (24.7%) (33.1%) (33.5%) (50.0%) Pantos (51.0%) 84 93 100 Notes: 1. Forecasted market size for 2025 except for domestic MMA market, which is based on the current market. Converted from USD with foreign exchange rate of 1 USD = 1,114.6 KRW (As of January 29, 2021, Seoul Money Brokerage Services) 5 3 Maintenance of Partnership (Details) (1) 165 Spun-off entities can unlock new business initiatives under independent management , while NewCo will maintain its 0 partnership with LG Corp. 52 LG Corp. NewCo 119 119 119 Business Needs Business Needs 141 116 75 • Stable supply of quality raw • Large captive volume to materials and tailored sustain foundational scale services of business 238 Merit-based continuation of 238 238 • Business partner with deep business cooperation and • Global partner to develop understanding and relationship post spin-off new market inroads for advanced capabilities expansion 0 0 0 84 93 100 Notes: 1. Independent from LG Corp 6 4 NAV Discount Alleviation (Details, Cont’d) The market has responded positively to LG’s past strategic initiatives, as proved by greater total shareholder return 165 0 compared to the peers. The spin-off, as another strategic decision to move forward, is expected to further uplift the 52 shareholder value. LG Corp’s Strategic Initiatives and Annual TSR(1) Comparison(2) Market Cap. vs. NAV 119 TSR (%) KRW Tn 119 119 2018 2019 2020 2021 and beyond LG Corp. spin-off 141 Acquisition of Disposal of MRO Business cooperation 116 with a financial investor 75 automotive headlight business manufacturer Disposal of water Disposal of LCD treatment business polarizer business Disposal of PG business Battery business spin-off 238 238 238 18.6% 8.7% +9.8%p 0 Market Cap. NAV 0 (1.9%) (1.3%) 0 Ample Headroom +29.7%p (16.9%) for Value Uplift (21.0%) (Improve NAV Discount) 84 LG Corp Other HoldCo Avg. 93 Source: Company Filings, S&P Capital IQ, Bloomberg 100 Notes: 1. Annual TSR (Total Shareholder Return) = {[(Closing price on last day of year + annual total dividend per share) / Closing price on first day of year] – 1} x 100 2. Compared to other HoldCos, which include: SK Holdings, Hyundai Heavy Industries Holdings, GS Holdings, LS, and CJ 7 4 NAV Discount Alleviation (Details) 165 This spin-off aims to diversify investment risks and promote business-specific expertise by restructuring LG Corp.’s business 0 portfolio, which will ultimately alleviate the Company's NAV discount issue and enhance the corporate value going 52 forward. # Major NAV Discount Factors Solution 119 119 119 Common factors (holding companies) (1) Dependence on subsidiary dividend cash flow Subsidiary dividend gradually increasing 141 116 75 (2) Indirect holding of equity in blue-chip subsidiaries More shareholder options through spin-off (3) Risk of pursuing new business Diversify investment risk through spin-off 238 238 238 Individual factors (LG) Less investment attractiveness due to excessive (4) “Select & Focus” strategy through spin-off business diversification 0 0 Reinforce business-specific expertise and 0 (5) Electronics and telco business lack clear market superiority competitiveness through spin-off New growth engine stories and shareholder (6) Absence of cash allocation plan announcement value enhancement after spin-off 84 93 100 8 3.
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