Challenged Samsung merger was legit, rules Seoul court

A Seoul court on Thursday ruled that the merger of Samsung C&T and Cheil Industries in 2015 was legally valid, saying while it might have been intended to cement Lee Jae-yong’s grip on the Samsung group, such an act was not “banned under the law.”

This ruling was on the mechanics of the merger itself and did not directly relate to the bribery trials of Lee and disgraced former President Park Geun-hye.

Ilsung Pharmaceutical, a former shareholder in Samsung C&T, the construction affiliate of Samsung, sued to nullify the 2015 merger deal on the grounds that value of the builder was set too low in the merger. Ilsung held a 2.1 percent stake in Samsung C&T.

The Seoul Central District Court rejected Ilsung’s request, saying “there was no reason to see the merger as illegitimate just because its intention was to strengthen the control of one particular figure,” referring to Samsung Group heir-apparent Lee, who is now behind bars serving a five year term for bribing former president Park in exchange for business favors - including government backing for the 2015 merger.

“Even if the merger was part of the succession process, it could have positive effects such as securing stable management,” said the court. “Ensuring the succession does not seem the only purpose of the 2015 merger deal.”

Merging the two companies to cement control over a business group was not “barred under the law,” the court ruled, and therefore the controversial merger could not be considered illegitimate.

Samsung C&T and Cheil Industries were merged in 2015 at a ratio of 1 share of Cheil for every 0.35 shares of Samsung C&T, sparking protest from the latter company’s shareholders that its value was underestimated.

American hedge fund Elliott Associates waged a public battle against the merger and tried unsuccessfully to derail it through legal action.

The court ruled that it was “not outright clear” that the merger ratio was disadvantageous to former Samsung C&T shareholders.

“Even if it was somewhat unfair to shareholders [of Samsung C&T], it cannot be said that it was markedly unfair.”

The court also rejected Ilsung’s claim that the state-run pension service committed foul play in approving the merger.

It noted it could not find elements of breach of trust on the part of the National Pension Service (NPS) for its approval of the deal.

The NPS was the single biggest shareholder of Samsung C&T with a 11.2 percent stake. The state-run body’s approval was decisive in realizing the merger.

In August, Samsung’s de-facto leader Lee was given a five-year sentence on convictions of five charges, including bribery.

The Seoul Central District Court ruled that the tycoon bribed former President Park through Choi Soon-sil, Park’s confidante, in return for the president’s help in getting the state-run pension service to exercise its voting rights to support the merger.

The court ruled that Samsung offered the bribes to Park in anticipation of her help in cementing Lee’s control of the group. The presiding judge said Lee did not make a direct and specific request, but there was a tacit understanding.

BY KANG JIN-KYU [kang.jinkyu@joongang.co.kr ]