The Korea Herald


Cheil Industries pitches for merger deal with higher dividends

By KH디지털2

Published : June 30, 2015 - 14:13

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Cheil Industries Inc., the de facto holding company of the country's top conglomerate Samsung Group, pledged Tuesday to deliver more dividends to shareholders, as it seeks to convince investors ahead of a crucial shareholders meeting for a proposed merger with the group's construction arm.

The company at the top of the group's cobweb-like governance structure also promised to set up a committee tasked with boosting shareholders value and improving governance after its 8.9 trillion-won ($7.92 billion) deal to merge the group's construction unit, Samsung C&T Corp., is approved.

The shareholder-friendly measures, including a share buyback, came as the deal has been opposed by U.S. hedge fund Elliott Associates L.P., which claimed that the merger is against shareholders' interests and designed to help the leadership transfer at the family-run conglomerate.   

Elliot is the third-largest shareholder of Samsung C&T with a 7.12 percent stake.

The proposed merger, when completed, will put Lee Jay-yong, the 47-year-old son of the group's patriarch Lee Kun-hee, at the top of the ownership structure that controls 67 affiliates spanning from electronics to finance.

The heir apparent has been virtually running the group since his father was hospitalized in May last year after suffering a heart attack.

In a closed-door investor relations session in Seoul, Yoon Joo-hwa, the head of Cheil's fashion division, said the company will increase the payout ratio to 30 percent by 2020 from 21 percent in 2014.

"We will gradually raise the ratio considering the company's investment, and look into buying back shares," he said.

Yoon said the firm will also set up a corporate governance committee comprising outside directors which will review the impact of any future acquisitions away from the influence of the management.

In response to an analyst's question at the IR session, executives from the both units denied that there would be a second attempt to retry the merger if the deal falls through at the upcoming shareholder meeting.

"There will be no 'plan B' (for the merger)," Yoon said.

They said the timing is right for the merger since the gap between the size of the two units as well as their prospects will get bigger if the deal is delayed.

As part of its post-merger plan, Cheil said in a regulatory filing that it will expand its portfolio into health care, construction, food and biotech medicines.

Kim Bong-yung, a co-CEO at Cheil in charge of resort construction, said there is no plan to revise the merger ratio, since it was set based on "a rational decision."

Elliott argued that the proposed merger ratio of 1 Cheil share for 0.35 C&T share is not a fair calculation, as it has inflated Cheil's valuation while underrating that of Samsung C&T.

Kim refuted such a claim by saying that Cheil holds higher prospects given its "unique status" in the group's ownership structure.

Cheil, whose businesses range from clothing and theme park to food supplies and biosimilars, has been considered by investors with a premium even before its IPO in December last year, as the controlling Lee family owns a combined 42.15 percent in the firm, including Jay-yong's 23.23 percent.

Kim also pointed out that Cheil is the major stakeholder of Samsung Bioepis Co., a developer of biotech medicines, which announced Monday it is considering an initial public offering on the Nasdaq market to raise about 1.5 trillion won.

Samsung has been active in pushing for the biopharmaceutical business as one of its future growth drivers since its mainstay electronics sector is reaching a point of saturation.

The IR meeting is seen as a tactical move by Samsung to persuade the market to support the merger, which is expected to be put to a vote at a crucial shareholder meeting slated for July 17.

The hedge fund has asked the court to stop Samsung C&T from holding a shareholder meeting slated for next month and putting the merger plan to a vote.

It has also sought to prevent Samsung's ally KCC Corp. from exercising its voting rights at the planned shareholder meeting. Samsung C&T has sold its treasury shares, which is equivalent to 5.76 percent, to KCC as part of efforts to win more pro-merger shareholders.

KCC's acquisition had clearly come to add a voice to Samsung C&T during the shareholders' meeting, as Samsung C&T cannot exercise rights over its own shares.

Samsung C&T needs to secure at least 47 percent of the vote to push ahead with the deal. The likely votes in favor of the merger, represented by other Samsung arms, KCC and the Lee family, stand at some 20 percent so far.

Samsung and Elliot have been engaged in a proxy fight to ask minority stakeholders to delegate their voting rights to woo their support for each other's claims.

Institutional investors are estimated to own about 21.5 percent in the builder, including the National Pension Service, the state-run pension fund, that holds a swing vote with its 10.15 percent stake. Foreigners, including Elliott's 7.12 percent, have a combined 33.61 percent stake in Samsung C&T.

Shares of Cheil Industries jumped 1.72 percent to 177,500 won on the Seoul bourse on Tuesday, while Samsung C&T fell 0.3 percent to 66,200 won. The benchmark KOSPI rose 0.67 percent. (Yonhap)