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Samsung C&T defends merger plan

Korean builder hits back at U.S. hedge fund’s opposition to merger with Cheil Industries

Samsung C&T, the construction and trading arm of Samsung Group, is hitting back at stakeholders opposing its proposed merger with Cheil Industries.

On Wednesday, the Korean builder released information supporting the proposed merger, saying the move would reinforce the company against uncertainties facing the industry.

Saying that the price-book value ratio of major construction firms have dropped below one due to the prolonged slowdown in the industry, Samsung C&T argued that the merger would enable it to reduce the impact of the blow.

The company was responding to allegations by some opponents, including U.S. Elliot Management, that the Korean firm picked the timing of the merger intentionally when it was suffering from a weak PBR. A ratio of less than one means that the company is undervalued on the stock market.

A man walks past the headquarters of Samsung C&T in Seocho-dong, Seoul. (Yonhap)
A man walks past the headquarters of Samsung C&T in Seocho-dong, Seoul. (Yonhap)

According to Samsung C&T, most large construction firms’ PBR stood at below one in the first quarter of the year.

The data provided by Samsung C&T showed its PBR to be 0.67, while that of GS E&C came in at 0.61. The figure for Hyundai Motor Group’s builder Hyundai E&C came in at 0.81 while Daelim Industrial was 0.5.

“The merger decision was taken as it would create synergy effects and improve efficiency which will be more beneficial to shareholders in the face of such uncertainties,” the company said.

The company’s plans to merge with its affiliate has hit a major snag as U.S.-based hedge fund Elliott ― its biggest foreign investor with a 7.12 percent stake ― filed for a court injunction to stop the shareholders meeting on July 17.

“Elliott continues to believe that the proposed takeover is clearly neither fair nor in the best interests of Samsung C&T’s shareholders, and that it is unlawful. Elliott has, therefore, taken the step today of commencing legal proceedings,” the fund said in a press release Tuesday.

In arguing its case, Elliot also accused Samsung C&T of planning the merger at a time when its PBR is below one, making it disadvantageous for the stakeholders.

The swap rate has been set at 1 to 0.35 in favor of Cheil Industries.

Samsung C&T countered the accusation saying the ratio was determined according to related regulations, and that the PBR has been affected largely by poor investor sentiment pushing stock prices down.

By Suk Gee-hyun (monicasuk@heraldcorp.com)
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