Holding Companies HMG ’s ownership restructuring plan review Overweight (Maintain) Industry Report March 29, 2018 HMG announced business and ownership restructuring plans 1) Hyundai Glovis to merge with Hyundai Mobis’ spun-off businesses Hyundai Mobis will spin off its domestic module and after-service (A/S) businesses and Mirae Asset Daewoo Co., Ltd. merge them with Hyundai Glovis. The shareholders of Hyundai Mobis will receive Hyundai Glovis’ shares in accordance with the announced spinoff/merger ratios. [Analyst ] * Spinoff ratio Hyundai Mobis (surviving):Hyundai Mobis’ module/A/S businesses Dae -ro Jeong (spinoff) = 0.7895305:0.2104695 +822 -3774 -1634 [email protected] * Merger ratio Hyundai Glovis:Hyundai Mobis’ module/A/S businesses = 1:2.9211852 * 0.615 new shares of Hyundai Glovis for each share of Hyundai Mobis [0.2104695 Su Yeon Lee (spinoff ratio) ×2.9211852 (merger ratio)] +822 -3774 -7162 [email protected] 2) Major shareholders ’ stake in Hyundai Mobis to increase Following the spinoff/merger, major shareholders ’ 15.8% stake (6.9% for Chung Mong- koo and 9% for Chung Eui-sun) in the merged Hyundai Glovis will be swapped with Kia Motors ’ 16.9% stake in the surviving Hyundai Mobis. In addition, major shareholders will acquire 0.7% and 5.7% stakes in Hyundai Mobis from Hyundai Glovis and Hyundai Steel, respectively, through stock purchase agreements. * The share swap and purchase agreements will increase major shareholders ’ stake in the surviving Hyundai Mobis from 7% to 30.2%. 3) Expected impact on ownership structure Hyundai Motor Group (HMG) now appears to have established an ownership structure centered on Hyundai Mobis’ surviving entity. Via the spinoff/merger, the group will be able to unwind all of its four circular shareholding loops. In addition, as Hyundai Glovis’ largest shareholders will completely dispose of their shares, the risks associated with related-party transactions will be removed. Valuation and investment strategy * On March 28th, the market cap of Hyundai Mobis and Hyundai Glovis stood at W25.5tr and W6.5tr, respectively. Based on the merger price of W452,523, Hyundai Mobis’ spun-off businesses are valued at W9.3tr, which leaves the surviving entity’s market cap at W16.2tr. Meanwhile, based on the merger ratio and Hyundai Glovis’ share price of W173,000, as of March 28th, the current value of Hyundai Mobis’ spun-off businesses is estimated at W10.4tr. In light of Hyundai Mobis’ current price, the company’s market cap has a 4. 4% upside, theoretically. Going forward, Hyundai Mobis’ share price will likely reflect, albeit only partly, Hyundai Glovis’ post-merger share performance. Spin-offs and mergers require 46.7-53.3% affirmative votes On May 29th, Hyundai Mobis and Hyundai Glovis will hold extraordinary meetings of shareholders for the approval of the spinoff and merger. Mergers and spin-offs are subject to the approval of a special resolution by a majority of shareholders. According to Korea’s Commercial Act (Article 434), a special resolution requires the affirmative vote of two-thirds of the shareholders present (in person or by proxy) at a shareholders’ meeting (comprising at least one-third of total issued shares). For a controversial, highly-publicized merger/spin-off, we would expect the shareholders’ meeting attendance rate to reach 70-80%. Accordingly, HMG would need affirmative votes from 46.7-53.3% of shares with voting rights. Currently, affiliated parties hold 31% of Hyundai Mobis and 51.4% of Hyundai Glovis. Thus , Hyundai Mobis would need to gain consent from at least 15% of outside shareholders. March 29, 2018 Holding Companies HMG announces business and ownership restructuring plans 1) Hyundai Glovis to merge with Hyundai Mobis’ spun-off businesses Hyundai Mobis will spin off its domestic module and after-service (A/S) businesses and merge them with Hyundai Glovis. The shareholders of Hyundai Mobis will receive Hyundai Glovis’ shares in accordance with the announced spinoff/merger ratios. * Spinoff ratio Hyundai Mobis (surviving):Hyundai Mobis’ module/A/S businesses (spinoff) = 0.7895305:0.2104695 * Merger ratio Hyundai Glovis:Hyundai Mobis’ module/A/S businesses = 1:2.9211852 * 0.615 new shares of Hyundai Glovis for each share of Hyundai Mobis [0.2104695 (spinoff ratio)×2.9211852 (merger ratio)] Figure 1. Hyundai Glovis to merge Hyundai Mobis’ spun-off units Source: Mirae Asset Daewoo Research Table 1. Hyundai Mobis’ spinoff ratio (Wbn) Hyundai Mobis (pre-spin-off) Surviving entity Spin-off unit Total assets 25,362 18,812 6,551 Total liabilities 4,130 2,119 2,011 Net assets 21,233 16,693 4,540 Spin-off ratio 1 0.7895305 0.2104695 Total shares issued(common) 97,343,863 76,855,949 20,487,914 Total shares issued(preferred) 3,974 3,138 836 Source: Mirae Asset Daewoo Research Table 2. Merger ratio for Hyundai Glovis and Hyundai Mobis’ spun-off businesses (W) Hyundai Glovis Hyundai Mobis spin-off unit (Merging entity) (Merged entity) Base market cap 154,911 N/A Intrinsic value [(A×1+B×1.5)/2.5] N/A 452,523 A. Asset value 91,869 221,599 B. Earnings power value N/A 606,472 Relative value N/A N/A Share price for merger 154,911 452,523 Merger ratio 1 2.9211852 Source: DART, Mirae Asset Daewoo Research Table 3. Expected appraisal rights exercise prices (W) Hyundai Mobis Hyundai Glovis Current price (A) 261,500 173,500 Expected appraisal rights exercise prices (B) 233,429 151,156 (A)/(B) +12.0% +14.8% Note: Based on Mar. 28 closing prices Source: DART, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 2 March 29, 2018 Holding Companies 2) Major shareholders ’ stake in Hyundai Mobis to increase Following the spinoff/merger, major shareholders ’ 15.8% stake (6.9% for Chung Mong-koo and 9% for Chung Eui-sun) in the merged Hyundai Glovis will be swapped with Kia Motors ’ 16.9% stake in the surviving Hyundai Mobis. In addition, major shareholders will acquire 0.7% and 5.7% stakes in Hyundai Mobis from Hyundai Glovis and Hyundai Steel, respectively, through stock purchase agreements. * The share swap and purchase agreements will increase major shareholders ’ stake in the surviving Hyundai Mobis from 7% to 30.2%. Table 4. Expected changes in ownership after Hyundai Mobis’ spinoff (Wbn ) Pre-spinoff Post-spinoff Hyundai Mobis module and A/S Hyundai Mobis Hyundai Mobis (surviving entity) Shareholders businesses (spin-off entity) Market cap Appraised Appraised value # of shares Stake # of shares Stake # of shares Stake Notes (1) value (2) (1) -(2) Chung Mong-koo 6,778,966 7.0% 1,773 1,426,766 7.0% 646 5,352,200 7.0% 1,127 Chung Eui-sun 0 0.0% 0 0 0.0% 0 0 0.0% 0 Share swap with Kia Motors 16,427,074 16.9% 4,296 3,457,398 16.9% 1,565 12,969,676 16.9% 2,731 big gest shareholders Share transfer with Hyundai Steel 5,504,846 5.7% 1,440 1,158,602 5.7% 524 4,346,244 5.7% 915 big gest shareholders Share transfer with Hyundai Glovis 656,293 0.7% 172 138,130 0.7% 63 518,163 0.7% 109 big gest shareholders Treasury shares 2,643,195 2.7% 691 556,312 2.7% 252 2,086,883 2.7% 439 Total shares 97,343,863 100.0% 25,455 20,487,914 100.0% 9,271 76,855,949 100.0% 16,184 issued Note: Based on Mar. 28 closing prices Calculation based on share price for merger for Hyundai Mobis Source: DART, Mirae Asset Daewoo Research Table 5. Expected changes in ownership after merger between Hyundai Glovis and Hyundai Mobis (Wbn) Pre-merger Post-merger Merging entity Merged entity Hyundai Mobis module and A/S Post-merger Hyundai Glovis Shareholders Hyundai Glovis businesses Notes # of Stake Value # of shares Stake Value # of shares Stake Value shares Chung Mong-koo 2,517,701 6.7% 437 1,426,766 7.0% 646 6,685,548 6.9% 1,160 To swap shares with Kia Motors’ 16.9% stake in Chung Eui-sun 8,732,290 23.3% 1,515 0 0.0% 0 8,732,290 9.0% 1,515 Hyundai Mobis’ surviving entity Hyundai Motors 1,830,939 4.9% 318 0 0.0% 0 1,830,939 1.9% 318 Kia Motors 0 0.0% 0 3,457,398 16.9% 1,565 10,099,700 10.4% 1,752 Hyundai Steel 0 0.0% 0 1,158,602 5.7% 524 3,384,492 3.5% 587 Hyundai Motor Chung Mong-Koo 1,671,018 4.5% 290 0 0.0% 0 1,671,018 1.7% 290 Foundation Hyundai Glovis 0 0.0% 0 138,130 0.7% 63 403,502 0.4% 70 Hyundai Glovis’ treasury Hyundai Mobis share of 2.1% (post- module and A/S 0 0.0% 0 556,312 2.7% 252 1,625,090 1.7% 282 merger) businesses Total shares 37,500,000 100.0% 6,506 20,487,914 100.0% 9,271 97,348,992 100.0% 16,890 issued Note: Based on Mar. 28 closing price for Hyundai Glovis and merger price (W452,523) for Hyundai Mobis Source: Mirae Asset Daewoo Research Mirae Asset Daewoo Research 3 March 29, 2018 Holding Companies Table 6. Valuation of Hyundai Glovis’ spun-off units (Wbn) New shares of Hyundai Glovis to be issued for Hyundai Mobis’ spun-off units Merged entity Shareholders Hyundai Mobis module and A/S Post-merger Hyundai Glovis Notes businesses # of shares Stake Value # of shares Stake Value Chung Mong-koo 1,426,766 7.0% 646 4,167,847 4.3% 723 +77 Chung Eui-sun 0 0.0% 0 0 0.0% 0 0 Hyundai Motors 0 0.0% 0 0 0.0% 0 0 Kia Motors 3,457,398 16.9% 1,565 10,099,700 10.4% 1,752 +188 Hyundai Steel 1,158,602 5.7% 524 3,384,492 3.5% 587 +63 Hyundai Motor Chung Mong-Koo 0 0.0% 0 0 0.0% 0 0 Foundation Hyundai Glovis 138,130 0.7% 63 403,502 0.4% 70 +8 Hyundai Mobis module and A/S 556,312 2.7% 252 1,625,090 1.7% 282 +30 businesses Total shares issued 20,487,914 100.0% 9,271 59,848,992 61.5% 10,384 +1,113 Note: Based on Mar.