Elliott asks for injunction to block Samsung merger

Elliott Associates has strengthened its offensive against Samsung Group to stop the merger between construction arm Samsung C&T and Cheil Industries.

In a statement released Tuesday, the U.S. hedge fund led by Paul Elliott Singer said it continues to believe the proposed takeover by Cheil Industries is “clearly neither fair to nor in the best interests of Samsung C&T’s shareholders and that it is unlawful.”

It added that the fund has commenced legal proceedings for an injunction against Samsung C&T and its directors to block the proposed takeover, protecting the interests of Samsung C&T’s shareholders.

Samsung Group said a petition for an injunction had been filed Tuesday by Elliott with the Seoul Central District Prosecutors’ Office.

In May, Cheil Industries announced a plan to acquire the construction company in what was considered a move to help Samsung Electronics Vice Chairman Jay Y. Lee, son of ailing Chairman Lee Kun-hee, increase his influence within Samsung Group. Under the plan, each share of Samsung C&T would be exchanged for 0.35 share of Cheil Industries, the de facto holding company of Samsung Group.

Elliott Associates contends that undervalues Samsung C&T shares. To increase its clout in a merger vote scheduled July 17, the fund increased its stake from 5 to 7.12 percent last Thursday, making it the third-largest investor behind the National Pension Service and Samsung SDI.

Industry insiders said Elliott is taking legal action without discussing the problem with Samsung C&T because it wants to secure additional support from shareholders.

A regulation prohibits an investor holding more than a 5 percent stake in a company from acquiring more shares until five days after the last purchase.

Elliott could acquire additional shares today, but it would not affect the fund’s influence in the July merger vote.

It takes two days for purchased shares to be wired into a buyer’s account, and voting will be based on the stake held as of Thursday.

“It looks like Elliott is trying to delay the vote by taking legal action,” said Kang Hyun-chul, a researcher of NH Investment & Securities.

“It could be a long battle and Samsung definitely won’t want to see that happening as it wants to reform the governance structure by early next year. Elliott has gone through many similar cases and has won 60 percent of them.”

In 2000, Elliott invested in Argentina’s national bond. After the government declared default, it filed a lawsuit against Argentina and won, collecting $1.6 billion in 2012.

The fund demands an interim dividend and adjustment of the share exchange ratio between Samsung C&T and Cheil Industries.

Many other foreign investors are particularly upset about the exchange ratio because Samsung C&T’s total assets, about 29.5 trillion won ($26.38 billion), are roughly three times larger than those of Cheil.

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