A South Korean court on Wednesday rejected an injunction request by U.S. hedge fund Elliott Associates to block a proposed merger of two Samsung Group affiliates, paving the way for the deal proceedings crucial for the group’s leadership transition.

Elliott, the third-largest shareholder of Samsung C&T, the group’s construction and trading unit, filed two injunctions early this month, asking the court to stop a shareholder vote on July 17 on the merger plan between the builder and Cheil Industries, Samsung’s de facto holding company.

The Seoul Central District Court denied the request, saying: “The merger ratio was decided in line with local regulations. There is no reason to see it unfair unless the base share prices were manipulated illegally.”

Under the deal, Samsung C&T shareholders would receive 0.35 Cheil Industries share for each of their existing shares. Elliott has claimed the merger ratio was unfair and not in the best interests of C&T and its shareholders.

The court also found that there was no evidence relating to Elliott’s claim that the purpose of the merger is only to serve the interests of the Lee family, who hold a combined 40 percent stake in Cheil Industries.

The court said it will rule on a second injunction requested by Elliott to nullify the voting rights of KCC, which recently increased its stake in the builder by acquiring C&T’s treasury shares to support the takeover, ahead of the shareholder vote.

“We welcome the court ruling,” Samsung C&T said in a statement. “The decision was largely expected as the merger deal has been carried out through legal procedures.”

But Elliott expressed regret over the ruling, saying it still considers the offer unfair.

“We will continue to seek to prevent the proposed merger from being consummated, and we urge all Samsung C&T shareholders to do the same,” the fund said in a statement. 

Industry watchers said the latest ruling will help Samsung attract more favorable shareholders as well as strength the existing bond among allies.

In a tight proxy battle, Elliott has sought to sway foreign investors, the National Pension Service and minority shareholders based on the “unfair” merger ratio. But it has now lost the justification.

Supposing 70 percent of shareholders are to join the vote, Samsung C&T should secure 47 percent of favorable shares to push ahead with the merger plan, while Elliott should attract 23 percent shares to block the deal. 

According to sources, Samsung has secured an estimated 35.5 percent of favorable shares thus far.

Both Samsung and Elliott are still waiting for the largest shareholder NPS, the operator of the nation’s largest pension fund, to make its own decision on the merger. Its 10.15 percent of shares are expected to play a key role in proceeding the merger.

“Considering the NPS is a passive fund that prioritizes profits and C&T shares have surged since the merger announcement, the pension fund is likely to vote in favor of the merger,” said Shin Jang-sup, an economics professor at National University of Singapore.

By Lee Ji-yoon (jylee@heraldcorp.com)