The ?Icahn effect? is already being felt on KT&G, South Korea?s largest tobacco and ginseng producer.

Its shares on Wednesday rose 2.1 per cent, bucking a 3.1 per cent fall in the Seoul market, boosted by the Financial Times? report that Carl Icahn, the US billionaire shareholder activist has KT&G in his sights.

But the real question for shareholders and management alike is whether Mr Icahn will have a longer lasting impact on KT&G?s fortunes and on the future of investor activism in Asia.

Given his track record as the scourge of management ? the latest example is his bitter fight with Time Warner chief executive Dick Parsons ? Mr Icahn is unlikely to sit on his KT&G stake, believed to be under 5 per cent.

Indeed, at a meeting late last year, representatives from the veteran investor are believed to have urged KT&G officials to list its fast-growing ginseng unit, dispose of its properties, buy back more shares and pay a higher dividend.

Analysts said such demands by Mr Icahn and other foreign investors could be a catalyst to boost KT&G shares, at a time when the former state monopoly faces slow growth in its core cigarette market amid rising foreign competition.

The share price of KT&G ? worth about $7.7bn at Wednesday?s prices ? has risen more than 50 per cent over the past year.

But the shares are undervalued compared with international peers and have lagged other Korean blue chips, due to concerns over the company?s falling market share, rising production costs and continued export losses.

KT&G is already responding to some of the pressure from foreign shareholders, which control about 60 per cent of its shares.

It plans to develop its nationwide properties this year and list its biotech unit Celltrion in the second half. It has also paid out substantial dividends ? estimated at 28-32 per cent of annual earnings between 2000 and 2004 ? and pledged to buy back a significant portion of its shares by 2008.

However, the company has said it has no plans to list its ginseng and pharmaceutical units in the near future ? likely to be one of the key demands of Mr Icahn and other international funds.

Their argument centres on the realisation that the value locked in the ginseng arm is being diluted by the slow-growing, mature cigarette business.

The ginseng subsidiary is certainly growing very fast ? sales have more than doubled over the past two years as domestic and international consumers have flocked to the product?s health qualities.

But it remains small, accounting for just Won2bn ($2m) of KT&G?s Won3,000bn sales.

Korean observers say that by choosing KT&G, Mr Icahn should be able to avoid the nationalistic and protectionist feelings associated with the country?s powerful
chaebol, family-owned conglomerates such as Samsung and Hyundai.

However, he may also find it harder to fault KT&G?s corporate governance, which has been praised by analysts, and does not feature the cross-shareholdings, pliant boards and poison pills found in many chaebol. And by targeting KT&G, Mr Icahn is likely to clash with the political authorities.

?The government does not have any stake, but it can still regulate the company through tax and other measures,? says Song Ji-hyun, an analyst at Goodmorning Shinhan Securities.

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