Icahn-Led Group May Raise Offer for KT&G

Thursday, March 9th 2006, 10:23 am

By: News On 6

SEOUL, South Korea (AP) _ Investors led by U.S. billionaire Carl Icahn said Thursday they were ready to consider raising their informal offer to acquire South Korea's former government tobacco monopoly, but stopped short of making a formal bid.

In a letter addressed to KT&G Corp. CEO Kwak Young-kyoon, the investors said they were ready to raise their previous offer of 60,000 won ($61) a share, though emphasized KT&G would need to convince them a higher price was warranted.

That offer, made in a letter last month, valued KT&G at about $10 billion. In Thursday's correspondence, the investors suggested they might be willing to raise it to 70,000 won ($71) a share or higher. An offer of 70,000 won a share would value the company at about 11.2 trillion won ($11.4 billion) at current exchange rates.

KT&G shares rose 1.8 percent to close at 57,200 won ($58). The company's market capitalization stood at 9.1 trillion won ($9.3 billion) at the close of trading Thursday, according to the Korea Exchange.

Three funds controlled by Icahn, including Icahn Partners Master Fund LP, have combined forces with Steel Partners II LP to pressure KT&G, South Korea's former government tobacco monopoly.

They want KT&G to implement changes to bolster its share price, including the listing of a unit that makes products related to the ginseng root, popular in Asia for its perceived health benefits, and sell idle real estate assets. KT&G has rejected those demands.

Last month, the investors said they had amassed a 6.72 percent stake in KT&G to become the second largest shareholder. They are battling with the company's management for votes in a shareholders meeting on March 17, when two new outside board members will be elected.

``We urge you and the other members of KT&G's board of directors to seriously consider our proposal,'' Warren Lichtenstein, managing member of Steel Partners, wrote in Thursday's letter to Kwak.

Lichtenstein, who is seeking one of the outside board seats, emphasized the letter was meant to invite KT&G to discuss the proposal and was not the start of a formal bid. He also wrote, however, that ``we would consider commencing a cash tender offer.''

The letter requested a response ``by the close of business'' Friday.

Simon Lee, a spokesman for KT&G, said the company had no immediate reaction.

The tussle has grabbed headlines in South Korea, where investor activism is rare. Icahn's prominence in the United States, where he recently fought a high-profile battle with media giant Time Warner Inc., has also fueled interest.

If the attempt to purchase the company succeeds, it would be the first unsolicited buyout of a major South Korean company by overseas investors.

Foreign investors own 61 percent of the company. Franklin Mutual Advisers LLC, KT&G's largest shareholder with a stake of 8.29 percent, said this week it would back the board candidates nominated by Icahn's camp.