Elliott releases report detailing merger objections

With the first hearing between Samsung and U.S. hedge fund Elliott Associates to be held today, the activist fund sought to mobilize support Thursday by releasing a report detailing its objections to the proposed merger between Samsung C&T and Cheil Industries.

In the 27-page report, the fund described the takeover as “unfair,” and explained how the $8 billion all-stock takeover could work against the interests of Samsung C&T’s shareholders, including the fund.

In its conclusion, Elliott reiterated its previous claims, saying that “Elliott believes that the proposed takeover terms significantly undervalue Samsung C&T.”

It quoted other financial companies that also see the deal as unprofitable.

Elliott has become the third-largest shareholder of Samsung C&T after it increased its stake in the construction affiliate to 7.1 percent earlier this month. Under the planned deal, Cheil Industries, the de facto holdings company of Samsung Group, will acquire Samsung C&T, with every Samsung C&T share to be exchanged for a 0.35 share of Cheil.

Samsung C&T explained that the merger is meant to improve business synergy and that the ratio is appropriate. However, Elliott and some analysts see the takeover as a maneuver to increase control by Samsung Chairman Lee Kun-hee’s three children.

Elliott initiated legal proceedings after Samsung C&T decided to sell 9 million common treasury shares to KCC Corporation, a construction materials manufacturer, for 674 billion won ($608 million), making KCC the fourth-largest individual shareholder in the Samsung affiliate.

Since KCC is considered an ally of Samsung in the fight against Elliott, the fund is now seeking an injunction against the move.

Samsung C&T appointed Kim and Chang as its legal representatives while Elliott chose Nexus, another local law firm.

In the latest report, Elliott also claims that the merger will generate significant losses to Samsung C&T’s shareholders.

“The result is that Samsung C&T shareholders would, if the proposed takeover is consummated, give up 7.8 trillion won of book value to Cheil Industries shareholders for no consideration.”

Elliott also accused the proposal of likely generating new circular shareholdings.

Additionally, it expressed skepticism about Samsung’s business synergy explanation.

“Samsung C&T’s construction division is specialized in highly complex infrastructure, civil and plant projects whereas Cheil’s construction division focuses on plain vanilla building and remodeling,” Elliott said in the report.

A meeting is set for July 17 where shareholders will gather to decide the fate of the deal.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]