Hedge fund to up stake in Samsung C&T before merger

Shares of Samsung C&T tumbled Monday after a U.S. hedge fund announced plans to increase its stake in the company with a goal of enlarging its influence over the merger with Cheil Industries.

Samsung C&T shares closed at 75,000 won ($67) on the Kospi, down 7.36 percent, after hitting a 52-week high of 80,400 won during trading.

The value of Samsung C&T shares increased more than 20 percent in the past four sessions, which was hard to see before June 3. Shares were trading in the 60,000 won neighborhood, but increased by 10.32 percent next day and 9.5 percent on Friday.

The share value is on a roller coaster because of a U.S. hedge fund Elliott Associates, which said it opposes to the merger of Samsung C&T and Cheil Industries, the de facto hold company of Samsung Group.

Cheil Industries announced in May it would acquire Samsung C&T in what was considered by industry insiders as a move to help Jay Y. Lee, the son of ailing Chairman Lee Kun-hee, extend his influence within Samsung Group.

In the merger, each share of Samsung C&T will be exchanged for 0.35 shares of Cheil Industries, but Elliott Associates said the ratio undervalues Samsung C&T shares. The fund announced last week it had increased its stake in the construction company to 7.1 percent from below the 5 percent disclosure threshold. Samsung expects a board meeting in July to approve the proposal and the U.S. hedge fund wants to increase its clout in a merger vote.

Elliott Associates also sent a letter to major shareholders Friday saying they should oppose the merger. Sources say some foreign investors are going along with Elliott.

“We are totally on board with a merger that aims to create business synergy and improve transparency of the governance structure,” said Park Yu-kyung, executive of APG, a Dutch pension fund. “But because the 1-to-0.35 ratio is unfair, it should be adjusted to benefit all shareholders.”

APG owns a 0.3 percent stake in Samsung C&T.

Foreign investors purchased 107.6 billion won worth of Samsung C&T shares Thursday and 70.7 billion won worth the next day. Institutional buyers also bought 19 billion won worth of Samsung shares on Thursday and 47.7 billion won worth on Friday. But as foreigners sold 3.5 billion won worth and institutional buyers sold 27.9 billion won worth of shares Monday, the company’s share value plunged.

BY KIM CHANG-KYU, KWON SANG-SOO [kwon.sangsoo@joongang.co.kr]