The decision is a rare victory for an activist shareholder in South Korea, and comes at a time of growing public scrutiny of families controlling large conglomerates following a corruption scandal last year involving the Samsung Group.

Auto parts maker Hyundai Mobis Co Ltd, which controls Hyundai Motor Co, on Monday cited "uncertainty" about shareholder support for a restructuring plan at a meeting next week.

It also dropped a series of subsequent deals which would have enabled family members to secure a major stake in itself.

The firm said it will "supplement and improve" the plan, which is part of a broader bid by South Korea's second-biggest conglomerate to reform its circular ownership structure, reduce regulatory risk and prepare the group for father-to-son switch.

"It's a lesson that investors will no longer accept restructuring that only helps in succession," said Professor Park Sang-in at Seoul National University. "The move raises uncertainty about restructuring at Hyundai and other family-run conglomerates."

Hyundai Mobis' decision also comes before a meeting of advisors of shareholder National Pension Service to decide whether to lend their approval. Opposition would have led other institutional investors to follow suit, Park said.

Hyundai Mobis' plan involved spinning off its cash cow and combining it with logistics affiliate Hyundai Glovis Co Ltd, whose top shareholder is scion Chung Eui-son.

Proxy advisors at home and abroad joined Elliott in saying the deal undervalued the unit, and questioning its transfer to a company whose business was unrelated.

"As we pursued the plan, we also keenly felt that our communications with various shareholders and the market was inadequate," Chung, the only son of 80-year-old Group Chairman Chung Mong-koo, said in a letter to shareholders.

Hyundai Mobis said it has cancelled a May 29 shareholder meeting where the restructuring plan was to be put to a vote. The firm needed two-thirds of votes of shareholders present.

"I think the most likely scenario is to adjust the deal to favour Mobis shareholders more, then pursue it again," said analyst Yoo Ji-woong at eBest Investment & Securities.

Hyundai Motor Group in March announced a plan to streamline its ownership structure through a series of deals, responding to calls from the government and investors to reduce circular ownership structures. The plan involved giving the junior Chung a foothold in Hyundai Mobis, of which he owns no stake.

The following month, Elliott disclosed it held over $1 billion (746 billion pounds) worth of shares in three Hyundai Motor Group firms, and called on the group to adopt a holding company strategy and boost shareholder returns.

"[Hyundai Group] will re-evaluate our restructuring plan to better enhance the Group's business competitiveness and corporate governance as well as to strengthen shareholder value," Hyundai Motor said in a statement. The group will develop "an updated plan so we can meet the high expectations our stakeholders have of us," it said.

(Reporting by Hyunjoo Jin and Joyce Lee; Additional reporting by Heekyong Yang; Editing by Darren Schuettler and Christopher Cushing)