KT&G, the South Korean tobacco company that the US billionaire Carl Icahn is trying to buy, reported Thursday that its second-quarter profit rose 16 per cent after increasing sales of higher-priced cigarettes.

Net income at the country's biggest maker of cigarettes rose to 156.1 billion won, or US$ 164 million, in the three months ended 30 June from 134.5 billion won a year earlier, the Daejeon-based company said in a regulatory filing. Increased earnings may make it harder for Icahn and Warren Lichtenstein to win support for their plan to acquire KT&G, sell assets and increase dividends. The company's chief executive, Kwak Young Kyoon, will unveil his vision for the company in August, six months after rebuffing a takeover offer from the US investors.
"Earnings will keep improving gradually, helped by an increase in sales of pricier cigarettes," said Song In Ho, a fund manager at Kyobo Investment Trust Management in Seoul. "It'd be more difficult for Icahn to say KT&G is poorly managed when its earnings are improving."
Operating profit in the second quarter rose 19 per cent to 200.7 billion won and sales climbed 13 per cent to 602 billion won, KT&G said Thursday.
Icahn and Lichtenstein, holders of a combined 7.66 per cent of KT&G, are threatening to take over the tobacco company, saying it is poorly managed and is not doing enough to increase shareholder value. They want KT&G to spin off assets unrelated to its tobacco-making business, increase dividends and buy back more shares.
The two men, both hedge fund managers in New York, said in February that they would take their takeover offer directly to shareholders after the tobacco company refused to discuss it. They made an unsolicited bid on 23 February to acquire KT&G at 60,000 won a share, valuing the company more than US$ 10 billion.
Icahn and Lichtenstein, who was voted on to KT&G's board in March, said in February that they had US$ 2 billion committed to their bid and planned to borrow the rest. A hostile bid direct to shareholders by an overseas investor would be the first since at least 2000, when South Korea introduced an electronic regulatory filing system. (pi)