updated 3/17/2006 9:15:09 AM ET 2006-03-17T14:15:09

Investors led by U.S. billionaire Carl Icahn on Friday won one seat on the board of KT&G Corp., warning that they will use the platform to aggressively push for change at South Korea's dominant tobacco company.

CEO Kwak Young-kyoon announced the results at the company's annual shareholders' meeting in this city 160 kilometers (100 miles) south of Seoul where the company has its headquarters.

The result was short of the two seats Icahn's camp, the second-largest investor in the former state-run corporation, had hoped to win on the company's 12-member board of directors. The group of foreign investors had nominated three candidates to contest two outside director positions.

Warren Lichtenstein, the Icahn ally elected, vowed to play a leading role on the board.

"They should know that I have never been a passive investor or director and will not be passive on the KT&G Board of Directors," Lichtenstein, who did not attend the meeting, said in a press release. "As a director of KT&G, I intend to do everything in my power to help the company maximize long-term shareholder value."

The election was seen as a battle between investors supporting Icahn's proposals for bolstering KT&G's share price by listing a subsidiary and selling idle real estate assets and those backing the status quo. Foreign investors hold about 61 percent of KT&G's shares.

The group led by Icahn and Lichtenstein owns 6.72 percent of KT&G shares.

The stock declined 2.2 percent to close at 54,000 won ($56) in trading in Seoul.

The two candidates backed by management obtained 52 percent of the total votes, while the Icahn group's three candidates got 48 percent.

Icahn ally Warren Lichtenstein, however, won the largest number of votes. South Korean businessman An Yong-chan, backed by KT&G, was the second-biggest vote-getter and took the other outside seat.

Kwak has rejected Icahn's calls for change as premature and says he and the board of directors are working to increase the value of the company, a former government monopoly that controls about 75 percent of the cigarette market in a country where a quarter of the people smoke.

The company has also rejected an informal offer last month by the insurgent investors to purchase the company, which would value it at about $10 billion. The investors have so far stopped short of a formal offer. If such an attempt to buy the company were to succeed, it would be the first unsolicited buyout of a major South Korean company by overseas investors.

Investor activism practiced by Icahn, long known for shaking up corporate boardrooms in the United States, is controversial in South Korea, which remains ambivalent about the role of foreign capital in the world's 11th-largest economy.

About 30 members of the company's union, wearing red vests and black headbands, carried signs criticizing Icahn as shareholders entered the venue.

"Corporate Raider Icahn, Get out!" read one of the signs.

Icahn did not attend the meeting.

South Korean businessman An Yong-chan, nominated by KT&G, took the other seat, according to the tally of votes provided by the company.

Kwak, speaking to reporters after the meeting, said the result was what he had expected. He said he was willing to listen to the views of the dissidents now that they are represented on the board, but reiterated that his basic stance was unchanged.

"Our principle in regards to the ginseng business and the real estate is unchanged," he said.

The subsidiary that the Icahn group has advocated selling shares in manufactures products related to the ginseng root, popular in Asia for its perceived health benefits.

Kwak said that the first meeting of the new board would probably take place in about two weeks.

Views were divided on the result's significance.

"Although the Icahn group won't be able to change decisions at board meetings with only one representative of the group, it is certainly a success for the group as it can make its voice heard within the company and get access to inside information," Kim Young-Jin, head of Kim M&A Lab., a Seoul-based private merger and acquisition consulting firm, told Dow Jones Newswires.

E.S. Min, managing director in South Korea for Lehman Brothers, which along with Goldman Sachs has been advising KT&G ahead of the vote, cited the company's candidates getting the most votes as an important factor.

"The vote says its a win for the company," he said, but added that management should engage in a dialogue with the dissidents as they managed to obtain 48 percent of the vote.

Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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