Back To Top

Samsung, Elliott all out to win support ahead of showdown

Samsung Group, South Korea's top conglomerate, and a U.S. hedge fund opposing the group's plan to merge its key units, are expected to ramp up their efforts to gain more support from shareholders ahead of a showdown slated for next month, industry source said Sunday.

In a court battle with Samsung Group over the proposed merger between Samsung C&T and Cheil Industries Inc., U.S. activist hedge fund Elliott claimed last week that the merger deal is designed to help the group's owner family facilitate the power succession for Lee Jay-yong, the only son of the group's patriarch Lee Kun-hee.

But Samsung refuted Elliott's claim, saying that the merger plan is being carried out as a legitimate process in accordance with local law.  

The high-profile court battle came as Elliott, the third biggest shareholder in construction firm Samsung C&T with a 7.1 percent stake, applied for two court injunctions to block a May 26 offer by Cheil Industries, Samsung's de facto holding firm, to take over Samsung C&T for 8.9 trillion won (US$8.06 billion), claiming the deal is "unlawful and goes against shareholder interest."

The hedge fund has asked the court to stop Samsung C&T from holding a shareholder meeting slated for July 17 and putting the merger plan to a vote. It is also seeking to prevent Samsung C&T's sale of 5.76 percent of treasury shares to ally KCC Corp. and restrict KCC's voting rights.

The local court will deliver its decision on the injunctions by July 1.

Industry sources said that the court is unlikely to accept Elliott's request as the proposed merger ratio, which the hedge fund claims is damaging to Samsung C&T shareholders, is set in accordance with local law.

The sources said Samsung and Elliott would ratchet up to prod more shareholders to support each own claim.

Currently, foreign investors are estimated to hold a combined 33.6 percent in Samsung C&T, and the comparable figure for local institutions such as the National Pension Service and other asset managers is estimated at 20 percent.

Samsung C&T and its affiliates are said to own a combined 19.95 percent.

In order to go ahead with the proposed merger, at least two-thirds of shareholders in attendance, and more than one-third of entire shareholders approve the deal.

Given that stockholders representing a stake of some 70 percent usually attend a shareholders meeting, the Samsung side needs support from shareholders representing at least a 47 percent stake. Elliott, in contrast, should win support from shareholders representing 23 percent in order to thwart the merger deal.

The sources said local institutional investors are likely to support the proposed merger deal as they are also exposed to Cheil Industries, and such is the case with foreign investors, which means that they can reap profit should the merger deal go ahead.

"But it is unclear whether foreign investors will really side with Samsung, and it is hard for Samsung to meet demand raised by local institutions," said an asset manager familiar with the matter. (Yonhap)