Samsung’s mega-merger challenged by U.S. fund

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Samsung’s mega-merger challenged by U.S. fund

Samsung Group was challenged by an activist U.S. hedge fund over a mega-merger that is part of its preparations for a leadership succession.

New York-based Elliott Associates, a shareholder in the conglomerate’s construction unit, Samsung C&T, called the merger of that subsidiary with Cheil Industries unfair Thursday.

Elliott also announced Thursday it increased its stake in Samsung C&T to 7.1 percent from below the 5 percent disclosure threshold in a move that increases its clout in a vote on the merger. Samsung is expecting a meeting in July to approve the proposal.

In the merger, each share of Samsung C&T will be exchanged for 0.35 shares in Cheil Industries, a ratio that Elliott says undervalues the value of Samsung C&T shares.

In a regulatory filing, Elliott explained that the purchase of the additional Samsung C&T shares was “for the purpose of participating in management” of the company.

The U.S. hedge fund giant released a statement that criticized the merger proposal.

“Elliott believes that Cheil Industries’ proposed takeover of Samsung C&T significantly undervalues Samsung C&T and that the terms are neither fair to nor in the best interests of Samsung C&T’s shareholders,” it said.

On May 26, Cheil Industries, Samsung’s de facto holding company, said it would acquire Samsung C&T.

At the time, the group cited synergy and transparency as reasons for the acquisition, but analysts believe the move is primarily aimed at helping Jay Y. Lee, the son of ailing Chairman Lee Kun-hee, extend his influence.

The son is the largest shareholder of Cheil Industries and will become the largest shareholder of the new combined unit.

Samsung C&T defended the decision, reiterating that the decision is meant for business synergy.

“The decision to merge Samsung C&T and Cheil Industries is intended to increase the values of the companies in the future and ultimately contribute to the benefits of stakeholders,” said Samsung C&T in the statement.

“Faced with uncertainties in the global market and declining growth in the construction business, [Samsung] sees the merger as necessary in order to diversify business and seek a new source of revenues.”

The company also noted that the ratio is “based on the estimates by the current market,” adding that it will make an effort to reconcile with shareholders.

Earlier this week, Samsung Group launched a task force to oversee the mega-merger between the two Samsung affiliates.

The team consists of around 10 members including executives of the two companies. It is responsible for rearranging business lines ranging from construction to fashion and leisure, along with numerous legal and employment issues.

Elliott’s challenge represents the first major obstacle the conglomerate has faced in the leadership transition that began in 2013.

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