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Tension rises ahead of vote on Samsung merger

Samsung C&T shareholders will go to the polls Friday to decide whether to approve a high-profile merger with Cheil Industries, the de facto holding company of Samsung Group.

Tension is running high, as neither of the two sides -- Samsung’s controlling family or opponent U.S. hedge fund Elliott -- has yet emerged as a clear winner. 

But analysts said Friday’s vote will be remembered as one of the most critical moments in Korea’s corporate history, in that minority shareholders can swing the vote.

Since Elliott, Samsung C&T’s largest foreign shareholder with a 7.12 percent stake, publicly opposed the merger plan because of what it calls “unfair” merger terms in early June, Samsung’s construction and trading unit has made an all-out push to win over other shareholders to secure support in the merger vote. 

The builder felt forced to wage an all-out war against Elliott and its allies as it has a weak ownership structure. The controlling family’s friendly shareholdings added up to a total stake of just 20 percent in early June.

The builder has made some achievements in the past month and a half, defeating legal challenges to the deal raised by Elliott to block the vote. It also won support from major Korean institutional investors, including the National Pension Service, armed with emotional appeals to Korean shareholders based on nationalism. The company said its comprehensive ad campaign throughout the week made a positive impact on Korean individual voters.

In the week ahead of the shareholders meeting, a growing number of stock analysts bet on the approval of the merger. However, there are still uncertainties ahead of the vote because Samsung C&T needs two-thirds of the vote to approve the deal, which means that it needs more than 50 percent of all shareholders’ support if the voter turnout exceeds 80 percent. 

Votes on Elliott’s proposals

Another key point of Samsung C&T shareholders’ meeting is the vote on two proposals by Elliott. As a major shareholder with a stake of more than 5 percent, the U.S. fund proposed the introductions of noncash dividend payments and interim dividend payments at shareholders’ request.

Samsung C&T’s controlling family opposes the two proposals by Elliott, raising doubts about the fund‘s intentions. It says they are made in pursuit of short-term gains.

In particular, Samsung officials claimed that Elliott calls for noncash dividend payments targets shares of Samsung C&T in Samsung Electronics. Samsung C&T holds a 4.1 percent in the tech giant.

Elliott and its allies have accused Samsung of seeking the merger between Samsung C&T and Cheil with an aim to transfer control over the stake of Samsung C&T in Samsung Electronics to Samsung Group heir apparent Lee Jay-yong, who controls Cheil, the de facto holding company of Samsung Group, at a discounted price.

By Seo Jee-yeon (