22 May 2019
Chairman Terry Gou is facing increased scrutiny from shareholders regarding Hon Hai's future direction. Photo: Bloomberg
Chairman Terry Gou is facing increased scrutiny from shareholders regarding Hon Hai's future direction. Photo: Bloomberg

Hon Hai under pressure to boost transparency, dividends

Contract manufacturer Hon Hai Precision Industry Co., which counts Apple Inc. and Sony Inc. as major customers, is coming under intense pressure from big shareholders to boost dividends and increase transparency.

One of them is BlackRock Inc., the world’s biggest asset manager and Hon Hai’s largest outside shareholder with a 2.6 percent stake, according to the Wall Street Journal.

The investment fund wants Hon Hai founder and chairman Terry Gou to tap the company’s roughly US$17 billion cash pile and increase its dividend.

Other investors are asking questions.

A group including Dutch pension managers PGGM and APG Asset Management is pressing the company to give specific details about its business strategy and improve its transparency with investors.

The group holds almost 3 percent of the company’s shares outstanding.

The shareholders’ efforts show some of the world’s biggest long-term investors are getting more involved in the direction of Hon Hai.

The 40-year-old company trades under Foxconn, which has been synonymous with the rise and riches of Apple.

Hon Hai paid out 19 percent of its 2013 profit to shareholders compared with an average of 60 average among a group of Taiwanese peers including fellow Apple assembler Pegatron Corp. and personal-computer maker Compal Electronics Inc., according to an analysis by brokerage CLSA.

In the past five years, Hon Hai has paid out an average of 18 percent of profits versus an average of 54 percent for the group, the brokerage said.

In a statement to the Wall Street Journal on Tuesday, Hon Hai said it would consider a dividend increase “if it was linked to the best interest of all shareholders and if it was approved by shareholders” at its annual meeting.

Shareholder activism is rare in Asia, although Taiwanese law allows any stockholder with a 1 percent stake or more to nominate a board candidate or propose an item for vote at an annual shareholder meeting.

Gou, 64, is regarded as a legendary entrepreneur among local investors in Taiwan after growing a company he founded with less than US$10,000 into a profitable assembler of devices including Apple iPads and iPhones and Sony PlayStation games consoles.

He is the company’s single largest shareholder, with a 12.3 percent stake valued at more than US$5 billion, according to FactSet.

In recent months, he has worked to diversify Hon Hai away from contract manufacturing and slowing revenue from Apple, its biggest client, to such markets as telecommunication services, mobile software and e-commerce.

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